Income Multiple Limits on Mortgages

Cool Mo D

Looks like the central bank wants to impose limits on mortgage amounts based on income multiples. http://www.irishtimes.com/business/sectors/financial-services/central-bank-keen-to-impose-loan-limits-1.1948501

It should have been done years ago. It should also help slow the rise in house prices - less money available for mortgages means less money chasing the same amount of houses.

FreudianSlippers

They should start by imposing a minimum 10% deposit.

mariaalice

FreudianSlippers wrote: »

They should start by imposing a minimum 10% deposit.

I think people seemed to have missed that bit the central bank make the point that the majority of non performing mortgages had a very low deposit to mortgage ratio, so there thinking seems to be that as well as lower mortgage to income ratios there should be large deposits as well.

ardmacha

mariaalice wrote: »

I think people seemed to have missed that bit the central bank make the point that the majority of non performing mortgages had a very low deposit to mortgage ratio, so there thinking seems to be that as well as lower mortgage to income ratios there should be large deposits as well.

This stands to reason, if you haven't been able to accumulate a deposit then it suggests someone with little spare financial capacity or little ability to manage it.

mariaalice

ardmacha wrote: »

This stands to reason, if you haven't been able to accumulate a deposit then it suggests someone with little spare financial capacity or little ability to manage it.

Trying to impose on applicant's that they should have at least a 15% if not 20% deposit would no go down very well.

FreudianSlippers

mariaalice wrote: »

Trying to impose on applicant's that they should have at least a 15% if not 20% deposit would no go down very well.

Tough. It's this entitlement culture that ruins this country.

I dunno if there's figures available one way or the other but I would have thought a multiple of combined earnings was riskier than a higher multiple of 1 plus the other person's income.

Icepick

FreudianSlippers wrote: »

They should start by imposing a minimum 10% deposit.

20%

jank

About time tbh. Why there is not a 10%-20% min deposit ratio boggles the mind. However, as pointed out in this thread those with poor financial discipline would be the ones most affected by it and would start to flood liveline and the like complaining about such measures (da banks to blame again!!). Those who are good at saving and have some capital will still be able to buy their home without too much hassle.

quadrifoglio verde

mariaalice wrote: »

Trying to impose on applicant's that they should have at least a 15% if not 20% deposit would no go down very well.

As I said in the thread over in the accommodation forum, sadly people need protecting from themselves. By having income multiple limits and a requirement for a larger deposit, it will help stop people over stretching themselves,

Victor

mariaalice wrote: »

Trying to impose on applicant's that they should have at least a 15% if not 20% deposit would no go down very well.

I'm not certain it needs to be that high. It's when it drops below 10% that it becomes problematic. The property value also needs to be the lower of the current and historic (12 months?) value.

Deposit Deposit % Mortgage
€20,000 25% €80,000
€20,000 24% €83,333
€20,000 23% €86,957
€20,000 22% €90,909
€20,000 21% €95,238
€20,000 20% €100,000
€20,000 19% €105,263
€20,000 18% €111,111
€20,000 17% €117,647
€20,000 16% €125,000
€20,000 15% €133,333
€20,000 14% €142,857
€20,000 13% €153,846
€20,000 12% €166,667
€20,000 11% €181,818
€20,000 10% €200,000
€20,000 9% €222,222
€20,000 8% €250,000
€20,000 7% €285,714
€20,000 6% €333,333
€20,000 5% €400,000
€20,000 4% €500,000
€20,000 3% €666,667
€20,000 2% €1,000,000
€20,000 1% €2,000,000

Giving a mortgage in excess of the property value should be dissuaded so much that it should actually be taxed. I heard of one case of a pair of masters students (that is, they didn't have permanent jobs) who received a 120% mortgage.

The amount of the deposit also needs to cover the transaction costs (legal fees, stamp duty, lending costs, etc).

Scofflaw

I'm glad to see the CB moving in the directions it suggested during the crisis. It said at the time that it had a lot of unused prudential regulatory tools which it had failed to use during the bubble, and was considering implementing them to prevent future bubbles, but I wasn't going to hold my breath.

cordially,
Scofflaw

antoobrien

Victor wrote: »

Giving a mortgage in excess of the property value should be dissuaded so much that it should actually be taxed.

I don't know if the current CB guidelines have been published, but when I talked to BOI last year, I was told that they are not allowed hold a mortgage for any more than 90% of the purchase price (so they were reluctant to give me a mortgage to buy a place and renovate it, which was fair enough).

Victor wrote: »

The amount of the deposit also needs to cover the transaction costs (legal fees, stamp duty, lending costs, etc).

I was told by the mortgage advisor that, apart from the 10% mortgage, I need approx 3,500 - 5,000 for moving expenses, legal & other professional fees (e.g. engineer/architects reports etc) and the 1% stamp duty, so it's not like the banks aren't doing this already.

OMD

However, as happened in the UK this can push young people out of market. Younger people in general earn less than older as we all know. Unless a block is put on investors then people in their 50s will be in a position to pay off their mortgages taken out 20 years previously and then buy a property as an investment thus pricing out the younger people.

woodoo

Scofflaw wrote: »

I'm glad to see the CB moving in the directions it suggested during the crisis. It said at the time that it had a lot of unused prudential regulatory tools which it had failed to use during the bubble, and was considering implementing them to prevent future bubbles, but I wasn't going to hold my breath.

cordially,
Scofflaw

I agree with having limits but i fear the politicians will veto it. They will try and present it as them protecting the poor little first time buyer from the heartless regulators.

Sheldons Brain

woodoo wrote: »

I agree with having limits but i fear the politicians will veto it. They will try and present it as them protecting the poor little first time buyer from the heartless regulators.

Of course what people overlook that while restrictions may seem limiting to an individual wishing to buy, their overall effect on the market is to moderate prices and so making it affordable for first time buyers!

Can we ever go beyond mé féin and manage to look at the aggregate effect of anything in this country.

woodoo

Sheldons Brain wrote: »

Of course what people overlook that while restrictions may seem limiting to an individual wishing to buy, their overall effect on the market is to moderate prices and so making it affordable for first time buyers!

Can we ever go beyond mé féin and manage to look at the aggregate effect of anything in this country.

I agree, how many people would have been saved from being locked into negative equity mortgages living in houses they don't want to be in if these regulations had been in place 10 years ago. 1000's of people now defaulting on their mortgages no doubt overstretched themselves too.

_Kaiser_

Multiple issues with this, chiefly:

- Does nothing to address the current problem of arrears/those who thought they could be property magnates in the "good ole days"
- Prices younger people and those who didn't "go mad" out almost entirely given the current rental climate
- Does nothing to reform the rental market which is essential as the people above will likely have to stick with that option

Victor

_Kaiser_ wrote: »

Multiple issues with this, chiefly:

- Does nothing to address the current problem of arrears/those who thought they could be property magnates in the "good ole days"
...
- Does nothing to reform the rental market which is essential as the people above will likely have to stick with that option

It doesn't cure malaria or stop earthquakes either. It is a specific set of measures to address a specific issue.

NIMAN

Did we not always have multiple limits? (or supposed to have?).

Thats the reason why a couple earning €50,000 cannot get a €500,000 mortgage, because we have limits?

NIMAN

Did we not always have multiple limits? (or supposed to have?).

Thats the reason why a couple earning €50,000 cannot get a €500,000 mortgage, because we have limits?

Victor

NIMAN wrote: »

Did we not always have multiple limits? (or supposed to have?).

Thats the reason why a couple earning €50,000 cannot get a €500,000 mortgage, because we have limits?

I think it was obvious that those limits were too easy to circumvent.

_Kaiser_

Victor wrote: »

It doesn't cure malaria or stop earthquakes either. It is a specific set of measures to address a specific issue.

My point is that is all very well (and a good thing to be fair) but not something that can be done in isolation either.

Scofflaw

NIMAN wrote: »

Did we not always have multiple limits? (or supposed to have?).

Thats the reason why a couple earning €50,000 cannot get a €500,000 mortgage, because we have limits?

Those were guidelines rather than regulations, and internal bank ones at that. I suspect the CBI will probably be spelling out what constitutes income for the purposes of the multiple, something the banks seemed happy to fudge during the bubble. If there are penalties attached to the new rules, bank employees will be a lot more careful.

cordially,
Scofflaw

Halloween Jack

While these measures make a lot of sense in some respects, I'm inclined to agree with other posters that on the face of it, these measures could make it difficult for first time buyers in the short to medium term.

A lot of the young professionals I know who rent in dublin are paying between 600-750 a month in rent for fairly average accomodation. By the sounds of it people are going to need 40k for a deposit for even the most affordable properties inside the m50.

Amassing that kind of dough while paying large rents will necessitate either a very large salary for young people or a significant amount of time to save.

This is going to mean less people can transition from renting to owning in the next which you would imagine will push rents even higher, putting a further squeeze on people trying to save.

If rents keep rising, but property prices stabilise you would expect investors and buy to let's (which seem to be exempt from the income limits for some reason) can capitalise on the situation at the expense of first time buyers.

It really doesn't look too rosy for young people hoping to buy for the next few years.

Victor

Halloween Jack wrote: »

If rents keep rising, but property prices stabilise you would expect investors and buy to let's (which seem to be exempt from the income limits for some reason) can capitalise on the situation at the expense of first time buyers.

Buy-to-lets tended to have greater restrictions that private residences, in particular shorter repayment terms.

Godge

Halloween Jack wrote: »

While these measures make a lot of sense in some respects, I'm inclined to agree with other posters that on the face of it, these measures could make it difficult for first time buyers in the short to medium term.

A lot of the young professionals I know who rent in dublin are paying between 600-750 a month in rent for fairly average accomodation. By the sounds of it people are going to need 40k for a deposit for even the most affordable properties inside the m50.

Amassing that kind of dough while paying large rents will necessitate either a very large salary for young people or a significant amount of time to save.

This is going to mean less people can transition from renting to owning in the next which you would imagine will push rents even higher, putting a further squeeze on people trying to save.

If rents keep rising, but property prices stabilise you would expect investors and buy to let's (which seem to be exempt from the income limits for some reason) can capitalise on the situation at the expense of first time buyers.

It really doesn't look too rosy for young people hoping to buy for the next few years.

http://www.rte.ie/news/business/2014/1007/650641-central-bank-mortgages/


The biggest problem with this measure is that it is a demand-side measure that in the short-term will depress house prices and increase rents but will do nothing to increase the supply of housing.

When you have supply-side measures such as Part V pushing up the cost of building houses, the net effect will be to further reduce the supply of housing. Without real supply-side measures - higher density, removal of Part V, controls on land prices, provision of serviced and zoned sites etc - the supply of houses will remain too low.

The long-term effects of this will be to drag down economic growth.

Halloween Jack

Godge wrote: »

http://www.rte.ie/news/business/2014/1007/650641-central-bank-mortgages/


The biggest problem with this measure is that it is a demand-side measure that in the short-term will depress house prices and increase rents but will do nothing to increase the supply of housing.

When you have supply-side measures such as Part V pushing up the cost of building houses, the net effect will be to further reduce the supply of housing. Without real supply-side measures - higher density, removal of Part V, controls on land prices, provision of serviced and zoned sites etc - the supply of houses will remain too low.

The long-term effects of this will be to drag down economic growth.

Yeah, I mean, as far as I understood, even with a 25% rise in prices this year, developers were reluctant to supply new units at the levels required. It's hard to see how this measure helps toward alleviating housing shortages in some areas of the country.

gaiscioch

OMD wrote: »

However, as happened in the UK this can push young people out of market. Younger people in general earn less than older as we all know. Unless a block is put on investors then people in their 50s will be in a position to pay off their mortgages taken out 20 years previously and then buy a property as an investment thus pricing out the younger people.

This. Today's proposal doesn't address the issue of capital-rich property speculators driving up the cost of housing so that families can't afford it. State policy should be used to disincentivise these speculators from their parasitic role in the housing market, just as in the past it has used, for instance, the tax system to encourage them to speculate in property. "Interference in the market" cannot be just one way.

Victor

gaiscioch wrote: »

This. Today's proposal doesn't address the issue of capital-rich property speculators driving up the cost of housing so that families can't afford it. State policy should be used to disincentivise these speculators from their parasitic role in the housing market, just as in the past it has used, for instance, the tax system to encourage them to speculate in property. "Interference in the market" cannot be just one way.

One needs to separate speculators from investors.

Most of the tax reliefs for property development are gone. CGT probably needs to be brought more in line with the rates charged for income tax.

Sheldons Brain

Scofflaw wrote: »

Those were guidelines rather than regulations, and internal bank ones at that. I suspect the CBI will probably be spelling out what constitutes income for the purposes of the multiple, something the banks seemed happy to fudge during the bubble. If there are penalties attached to the new rules, bank employees will be a lot more careful.

cordially,
Scofflaw

The Central Bank also need to get at the auditors. In 2008 it seemed that there was no problem with any auditor. Rules are needed to ensure that the auditors determine if the bank employees are acting the maggot. If auditors don't do their job then it should be made clear that they will end up like Arthur Anderson.