New Central Bank Rules - Good Thing or Bad Thing?

PhoenixParker

What is everyone's opinion of the new central bank rules? Are they helping or hindering the property market?

Me, I think they're probably one of the most sensible interventions in the property market in years. While they make it more difficult to buy a house they level the playing field and they've taken so much heat out of the market particularly in Dublin.

Victor

PhoenixParker wrote: »

new central bank rules?

Which ones? Do you mean the ones relating to mortgages that were issued more than a year ago? https://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

Villa05

PhoenixParker wrote:

What is everyone's opinion of the new central bank rules? Are they helping or hindering the property market?

They should be put in the constitution and made law forever.

PhoenixParker

Victor wrote: »

Which ones? Do you mean the ones relating to mortgages that were issued more than a year ago? https://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

I meant the mortgage rules which are commonly referred to as the central bank rules around boards.ie.

I'm surprised they seem to be so popular.

MarkAnthony

None of us want the stupidity that was the boom, which was largely caused by run away credit.

While I'd welcome a relaxation of the deposit rules, especially where there is a large rent bill each month, I'm strongly in favour of LTI levels. LTI is a sensible way to link house prices to the general state of the economy.

quadrifoglio verde

In the main the rules are good.
They stop banks being stupid and people being really stupid.
That said I would RE-examine the rules regarding trader uppers and the deposit rules.
I can't understand why a person trading up needs a larger deposit than a first time buyer bidding on the same size house.

I'd also look at changing deposits to 10%. In return however I'd remove the exceptions. They seem to cause a hault in the market once used up and there's no guidelines as to how one can get an exception

Victor

PhoenixParker wrote: »

New Central Bank Rules

My issue was they aren't new. They've been on the go for over a year.

MarkAnthony

quadrifoglio verde wrote: »

In the main the rules are good.
They stop banks being stupid and people being really stupid.
That said I would RE-examine the rules regarding trader uppers and the deposit rules.
I can't understand why a person trading up needs a larger deposit than a first time buyer bidding on the same size house.

I'd also look at changing deposits to 10%. In return however I'd remove the exceptions. They seem to cause a hault in the market once used up and there's no guidelines as to how one can get an exception

A trader-upper should easily have more than a 20% deposit with the equaity in their previous residence. It needs this rule in place to get the market functioning as it should. However this is were discretion in certain cases should come in on deposits.

quadrifoglio verde

MarkAnthony wrote: »

A trader-upper should easily have more than a 20% deposit with the equaity in their previous residence. It needs this rule in place to get the market functioning as it should. However this is were discretion in certain cases should come in on deposits.

We both know that this isn't the case for a lot of people.
While they might have a decent lti, there house might just be in positive equity.
What is wrong with demanding a 10% deposit of them? Other than not owning a house, nothing sets them apart from a ftb that's the same age as them.
So why should they need a higher deposit?

Victor

quadrifoglio verde wrote: »

We both know that this isn't the case for a lot of people.
While they might have a decent lti, there house might just be in positive equity.
What is wrong with demanding a 10% deposit of them? Other than not owning a house, nothing sets them apart from a ftb that's the same age as them.
So why should they need a higher deposit?

Because they have already burdened themselves with one over-priced property.

MarkAnthony

Victor wrote: »

Because they have already burdened themselves with one over-priced property.

This.

While I sympathise, as I was in the same boat, at a macro-economic level; basically what the CB should be looking at - it's not their problem. In fact given the burden of neg equity probably bening transfered that's an even bigger reason to be looking for a larger deposit.

Really though if a couple can't scrape togeather €50K for a deposit on a 3 bed semi they probably shouldn't be trying to move.

Sucks but them's the breaks of buying in a boom.

SarahMollie

Happy to see how popular they are, even if this is a very small and not scientific sample size.

Full disclosure, I bought in 2015. I bought to have a place to live comfortably for the next few years and then hopefully my OH and I will trade up together in maybe 5 years (he lives with me now).

I'd be very happy if my place either just holds its value or stays close enough. Even if it falls slightly, that will mean that whatever I want to trade up to will probably have fallen also. Costs are maybe €12k per year now versus the €16.5k we were paying in rent to pay someone elses mortgage, and we're in a bigger place in a location with more amenities. I'm happy out.

Bottom line is I'm not an investor trying to make big capital gains. I want to live somewhere nice and ultimately be able to buy again in a few years so a steady market is a good thing in my book.

whiskeyman

the CB rules are much needed, but much more is needed around them to help the market and also those wanting to buy.

Victor

Just to point out how bad things were back in the day, I had a conversation with a pair of college students in 2009 that had been given a 110% loan.


Deposit €30,000 Ratio 75% Loan value €120,000
Deposit €30,000 Ratio 80% Loan value €150,000
Deposit €30,000 Ratio 85% Loan value €200,000
Deposit €30,000 Ratio 90% Loan value €300,000
Deposit €30,000 Ratio 95% Loan value €600,000
Deposit €30,000 Ratio 100% Loan value infinite
Deposit €30,000 Ratio 105% Loan value infinite
Deposit €30,000 Ratio 110% Loan value infinite

listermint

Problem is supply, its a goverment problem needs a government solution.

Thats the story in full.

The rules are fine and required.

Caliden

listermint wrote: »

Problem is supply, its a goverment problem needs a government solution.

Thats the story in full.

The rules are fine and required.

There's very little profit to be made in housing developments which is why commercial development seems so prevalent.

Tax breaks need to be given to developers/contractors in order to sort out the crisis while keeping the 20% mortgage rule to curb another bubble.

listermint

Caliden wrote: »

There's very little profit to be made in housing developments which is why commercial development seems so prevalent.

Tax breaks need to be given to developers/contractors in order to sort out the crisis while keeping the 20% mortgage rule to curb another bubble.

Id be interested in the True facts of this 'very little profit' tbh. What levels of profit are acceptable. From what i have read profits for residential on the continent are acceptably lower than Ireland. It seems as though developers appear to be waiting for a return to Boom profits before building.


here is what we do know, The Banks, Nama and some developers are in fact sitting on land. Various developers purchased off Nama at massive discount yet we still have no action in the market.

Yes i agree there should be some stimulation but what about on the flip side penalties of sitting on project land. Inverse penalty stimulation.

We cannot allow these 3 entities to prevent development i think the profit thing is a red herring they are creating a crisis all of its own by wishing to return massive profits.

Its not plausible

Sleepy

Apply Property Tax to unused development land.
Grant the same special VAT limit to the construction industry as currently granted to the Hotel industry.
Investigate the REA Rates for the Construction Industry - are there still people on welfare who'd happily accept work below these levels if they were reduced?

Is there a means by which developers could be made crystallise their losses on land they over-paid for during the boom? If a few of them need to be bankrupted to force the sale of their land banks at current market rates (i.e. ones which could allow financially solvent companies to develop housing on these lands at prices which the market can bear). Even threatening to enact legislation along these lines may prompt some developers to start building at lower profit / break even levels in order to keep their companies afloat.

There's no silver bullet to our housing crisis but there seems to be quite a few things that could be done to alleviate supply side issues.

athtrasna

Mod note

Posters are reminded the topic at hand relates to the central bank rules. There are plenty of other threads to discuss policy, supply etc.

Magicmatilda

quadrifoglio verde wrote: »

We both know that this isn't the case for a lot of people.
While they might have a decent lti, there house might just be in positive equity.
What is wrong with demanding a 10% deposit of them? Other than not owning a house, nothing sets them apart from a ftb that's the same age as them.
So why should they need a higher deposit?

Because research has shown that first time buyers are less likely to default than non first time buyers. That is the reason given by the central bank in the FAQs here http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

Villa05

Magicmatilda wrote:

Because research has shown that first time buyers are less likely to default than non first time buyers. That is the reason given by the central bank in the FAQs here

Non first time buyer default may have alot to do with keeping the 1st property rather than selling before buying the 2nd

They were goosed when the bubble burst. Strong argument for 10% deposit when the first house has been sold in my opinion

PhoenixParker

The FTB 10% rule only applies on the first E220k of the house price.

The maximum difference in the required deposit is 22K.
While it's a lesser deposit for first time buyers, the step up really ensures that the difference between first and second time buyers should never be too gaping.

Obviously it depends on the exact details of the mortgage, but somewhere around three years of repayments will clear 22K off the balance of a mortgage. Assuming no house price changes once a buyer stays in their house for three years, then the second time buyer shouldn't really be at a disadvantage.

SarahMollie

PhoenixParker wrote: »

The FTB 10% rule only applies on the first E220k of the house price.

The maximum difference in the required deposit is 22K.
While it's a lesser deposit for first time buyers, the step up really ensures that the difference between first and second time buyers should never be too gaping.

Obviously it depends on the exact details of the mortgage, but somewhere around three years of repayments will clear 22K off the balance of a mortgage. Assuming no house price changes once a buyer stays in their house for three years, then the second time buyer shouldn't really be at a disadvantage.

Agree with the first 2 paragraphs completely but can you expand on the third please? When you say €22k, assuming this includes the interest instead of just the principle.

Like, how much of a loan are you basing this on and over what period? Are you factoring in any overpayments?

PhoenixParker

SarahMollie wrote: »

Agree with the first 2 paragraphs completely but can you expand on the third please? When you say €22k, assuming this includes the interest instead of just the principle.

No it's the amount paid off the principal. I just stuck a few numbers into Dr Karls Mortgage calculator to get a rough idea.

https://www.drcalculator.com/mortgage/ie/

I used start date April 2016, 3.65% as the interest rate and 25 years as the term.

Loan of 400K, balance is 22K less in May 2018 (two years and 1 month)

Loan of 300K, balance is 22K less in January 2019 (just under 3 years)

Loan of 250K, balance is 22k less in August 2019 (just over 3 years)

Loan of 220K, balance is 22k less in January 2020, (3 years and 9 months)

It takes longer as the sums get smaller, or if you take out a longer loan. Interest rates are less of a factor because as interest rates go up so do your repayments.

I guess if you're upgrading you could argue there's a probability that the 2nd time buyer is selling a lower value house to move into the above mortgage bracket, but surely if you're moving into the higher mortgage bracket you should be able to save the E22K extra by setting aside your future repayment amount each month?

I just don't think the difference between the first time buyer deposit requirement and the second time buyer deposit requirement is as huge as it looks at first glance.