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.

FreudianSlippers

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.

ardmacha

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.

dlouth15

Overall it is a good idea provided supply-side problems are also addressed.

Halloween Jack

dlouth15 wrote: »

Overall it is a good idea provided supply-side problems are also addressed.

I would agree, but given the nature of the market, fixing the supply side will take time, I reckon the next 2 years or so are going to be tight for anybody renting in the city who doesn't have an income well over the average...

womandriver

Sheldons Brain wrote: »

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.

I think you'll find it's not the auditor's job to determine if "bank employees are acting the maggot".

Godge

The other thing about this is that we will be back to the 80s and 90s where it was very handy if your dad golfed with the local bank manager.

Godge

Godge wrote: »

The other thing about this is that we will be back to the 80s and 90s where it was very handy if your dad golfed with the local bank manager.

Do banks have actual mangers who any more? who live in and are known in the community? I haven't been in my bank in two years they have this thing called internet banking. The days of a bank manager making decisions are long gone.

draiochtanois

This post has been deleted.

Godge

mariaalice wrote: »

Do banks have actual mangers who any more? who live in and are known in the community? I haven't been in my bank in two years they have this thing called internet banking. The days of a bank manager making decisions are long gone.

They still have people who make decisions on loans. It is more formulaic these days but to get an exception to the guidelines in the future, you will have to be in the know.

Halloween Jack

http://www.irishtimes.com/news/politics/european-investment-bank-to-fund-irish-social-housing-1.1956789

Seems like there are moves afoot to help with the supply side of the equation...

Dannyboy83

This seems like a good idea, but at the wrong time.

To be successful, it requires house prices to fall, through increased supply, and alleviate the huge rent bubble in Dublin/Cork.

http://www.independent.ie/irish-news/news/four-in-five-country-estates-go-to-foreign-buyers-30658658.html
INTERNATIONAL property buyers now account for around 80pc of purchases in the Irish country homes and estates market - with Irish-based buyers now making up just one in five purchases, mostly at the lower end.

But I don't really see how prices can fall to make the 20% figure workable for citizenry, if foreign investment funds are driving up the cost of property?

My guess is that this will continue to inflate the rent bubble, which will further entice the various investment funds (Allianz/IPUT etc.) who have been buying up property. Similar to London/Australia on a smaller scale.

Scofflaw

Dannyboy83 wrote: »

This seems like a good idea, but at the wrong time.

To be successful, it requires house prices to fall, through increased supply, and alleviate the huge rent bubble in Dublin/Cork.


But I don't really see how prices can fall to make the 20% figure workable for citizenry, if foreign investment funds are driving up the cost of property?

My guess is that this will continue to inflate the rent bubble, which will further entice the various investment funds (Allianz/IPUT etc.) who have been buying up property. Similar to London/Australia on a smaller scale.

I don't see this being as much of a problem as is suggested. The "foreign investors" (what proportion of buyers are these?) certainly haven't successfully kept the property market at bubble prices to date, so I can't see why they should do so once this rule is in effect.

Cash buyers constituted 54% of the market in 2013, but the market in 2013 looks nothing like the market in, say, 2005 - in 2005, €35bn in mortgages were drawn down, compared to about €2.5bn in 2013. "Normalised" lending in the Irish market should be around €8-10bn, which would make cash buyers once again a small fraction of the market, and by no means the market-makers.

https://www.investec.ie/content/dam/investec/investec.ie/documents/Research/irish-economy/Irish%20Housing%20February%202014.pdf

cordially,
Scofflaw

Frank Lee Midere

Scofflaw wrote: »

I don't see this being as much of a problem as is suggested. The "foreign investors" (what proportion of buyers are these?) certainly haven't successfully kept the property market at bubble prices to date, so I can't see why they should do so once this rule is in effect.

Cash buyers constituted 54% of the market in 2013, but the market in 2013 looks nothing like the market in, say, 2005 - in 2005, €35bn in mortgages were drawn down, compared to about €2.5bn in 2013. "Normalised" lending in the Irish market should be around €8-10bn, which would make cash buyers once again a small fraction of the market, and by no means the market-makers.

https://www.investec.ie/content/dam/investec/investec.ie/documents/Research/irish-economy/Irish%20Housing%20February%202014.pdf

cordially,
Scofflaw

In any case he is referencing country estates. Mansions around the country. 19th century big houses. For that sector of the "super rich" who can't buy a pad in the Cotswolds.

That's a symptom of the bust not the boom.

Relatively these places are in fact cheap. I know if I won the lottery and the choice was between a 2 down 3 up semi-d in BlackRock or a country estate in Offaly I'd do the latter. Id rent in Dublin. Can't go crazy on just a million or two.

Frank Lee Midere

Interesting though that this is the first time since 1990 that Irish buyers of country pads have been such a low percentage? But where then does the infinite cash in Dublin come from.

Halloween Jack

Scofflaw wrote: »

I don't see this being as much of a problem as is suggested. The "foreign investors" (what proportion of buyers are these?) certainly haven't successfully kept the property market at bubble prices to date, so I can't see why they should do so once this rule is in effect.

Cash buyers constituted 54% of the market in 2013, but the market in 2013 looks nothing like the market in, say, 2005 - in 2005, €35bn in mortgages were drawn down, compared to about €2.5bn in 2013. "Normalised" lending in the Irish market should be around €8-10bn, which would make cash buyers once again a small fraction of the market, and by no means the market-makers.

https://www.investec.ie/content/dam/investec/investec.ie/documents/Research/irish-economy/Irish%20Housing%20February%202014.pdf

cordially,
Scofflaw

The poster was talking about the rental market in terms of a bubble prices, which from experience, seem to be at least similar to what I was paying in '06ish.

With mortgage lending at the very low levels you've pointed out, and these new measures likely to see lending levels actually decline, surely cash buyers/ investors will become an even bigger part of the market?

Saipanne

Dannyboy83 wrote: »

This seems like a good idea, but at the wrong time.

To be successful, it requires house prices to fall, through increased supply, and alleviate the huge rent bubble in Dublin/Cork.


But I don't really see how prices can fall to make the 20% figure workable for citizenry, if foreign investment funds are driving up the cost of property?

My guess is that this will continue to inflate the rent bubble, which will further entice the various investment funds (Allianz/IPUT etc.) who have been buying up property. Similar to London/Australia on a smaller scale.

You do realise that prices are affected by supply AND demand?

Scofflaw

Frank Lee Midere wrote: »

Interesting though that this is the first time since 1990 that Irish buyers of country pads have been such a low percentage? But where then does the infinite cash in Dublin come from.

The suggestion - and it comes from David McWilliams, which means it should be treated as basically anecdotal - is that you're looking at older Irish people who bought their houses in the 70s-90s and who are now mortgage-free and looking at investments for their old age.

If you had, say, a 3-bed family house in Shankill which is mortgage-free, having been bought in the 70s-90s, and you were retired, with grown-up children, then you have a huge opportunity to downsize your own accommodation, release a big pile of cash, and buy rental properties for income.

It's a temporary opportunity, and there's a limited (but quite large, I imagine) supply of such buyers.

cordially,
Scofflaw

Scofflaw

Halloween Jack wrote: »

The poster was talking about the rental market in terms of a bubble prices, which from experience, seem to be at least similar to what I was paying in '06ish.

With mortgage lending at the very low levels you've pointed out, and these new measures likely to see lending levels actually decline, surely cash buyers/ investors will become an even bigger part of the market?

I don't see that lending levels will decline. I think they'll rise from the current lows more slowly under these rules than they would have otherwise - because there's a big difference between a rule set that makes it clear a house is a long-term investment that has to be worked for, as against a rule set where as long as the banks feel daring, you can gamble in the property casino with next to no cash stake - but I don't see that as a bad thing.

I think using mortgage lending in itself as some kind of metric of success is very wrong-headed. We could do with a normalised house market, not a speculative casino flush with credit.

cordially,
Scofflaw

Halloween Jack

Scofflaw wrote: »

I don't see that lending levels will decline. I think they'll rise from the current lows more slowly under these rules than they would have otherwise - because there's a big difference between a rule set that makes it clear a house is a long-term investment that has to be worked for, as against a rule set where as long as the banks feel daring, you can gamble in the property casino with next to no cash stake - but I don't see that as a bad thing.

I think using mortgage lending in itself as some kind of metric of success is very wrong-headed. We could do with a normalised house market, not a speculative casino flush with credit.

cordially,
Scofflaw

I'd agree with most of that, but logic would dictate that if lending is well below the standard level, and new measures are introduced to limit lending to first time buyers especially, it's optimistic to say lending will grow at all?

The measures in isolation are sound, I don't think many people would argue with the central bank trying to prohibit the banks from the rash lending practices of tha past. I also agree that notion that a growing housing market is a universally positive barometer of economic well being has been debunked.

But it does seem to me that this measure will put further pressure on an already high price rental market. With rents going up and people needing to save even more money if they hope to buy, a lot of well paid young people are going to have quite a lot less disposable income to spend in the wider economy. I'd imagine we'd want to be encouraging these guys to spend as much as possible for growth/jobs etc?

Frank Lee Midere

Halloween Jack wrote: »

I'd agree with most of that, but logic would dictate that if lending is well below the standard level, and new measures are introduced to limit lending to first time buyers especially, it's optimistic to say lending will grow at all?

The measures in isolation are sound, I don't think many people would argue with the central bank trying to prohibit the banks from the rash lending practices of tha past. I also agree that notion that a growing housing market is a universally positive barometer of economic well being has been debunked.

But it does seem to me that this measure will put further pressure on an already high price rental market. With rents going up and people needing to save even more money if they hope to buy, a lot of well paid young people are going to have quite a lot less disposable income to spend in the wider economy. I'd imagine we'd want to be encouraging these guys to spend as much as possible for growth/jobs etc?

You are right. The solution to all of this is supply. Not new credit.

Frank Lee Midere

Scofflaw wrote: »

The suggestion - and it comes from David McWilliams, which means it should be treated as basically anecdotal - is that you're looking at older Irish people who bought their houses in the 70s-90s and who are now mortgage-free and looking at investments for their old age.

If you had, say, a 3-bed family house in Shankill which is mortgage-free, having been bought in the 70s-90s, and you were retired, with grown-up children, then you have a huge opportunity to downsize your own accommodation, release a big pile of cash, and buy rental properties for income.

It's a temporary opportunity, and there's a limited (but quite large, I imagine) supply of such buyers.

cordially,
Scofflaw

Despite what you said about low mortgage drawdowns ( which was correct early 2014) I can't imagine cash can continue to chase an ever increasing market. Savings run out, banks have a near infinite supply. And with houses selling(or asking) for near boom time prices money can't keep being released from old timers property into other houses of near similar value. Anecdotally it's panicky 30+ year olds bidding it up. A guy on another thread said he knew a couple ( already in negative equity) who were given a 600k mortgage with 60k down and now that's all ruined.

Saipanne

Frank Lee Midere wrote: »

Despite what you said about low mortgage drawdowns ( which was correct early 2014) I can't imagine cash can continue to chase an ever increasing market. Savings run out, banks have a near infinite supply. And with houses selling(or asking) for near boom time prices money can't keep being released from old timers property into other houses of near similar value. Anecdotally it's panicky 30+ year olds bidding it up. A guy on another thread said he knew a couple ( already in negative equity) who were given a 600k mortgage with 60k down and now that's all ruined.

Why, the mortgage is already approved?