Central Bank mortgage lending rules discussion

Flatzie_poo

billymitchell wrote: »

From my own limited watching of house prices of the last 12 months, seems to be a lot of houses under about €300k seem to be going for over the asking, while most of those above €350k seem to be going for under the asking. Its probably based on peoples ability to cobble together the deposit for the lower price houses quicker and needing to move.

Thank the Central bank for that!

IMO, I think they'll either make the deposit rules more lax, or increase the amount of exemptions the banks can offer to the public.

I don't see this happening without a new government playing a white knight to woo the general public for votes closer to an election time IMO.

But here's hoping I'm wrong!

El_Dangeroso

Flatzie_poo wrote: »

Thank the Central bank for that!

IMO, I think they'll either make the deposit rules more lax, or increase the amount of exemptions the banks can offer to the public.

I don't see this happening without a new government playing a white knight to woo the general public for votes closer to an election time IMO.

But here's hoping I'm wrong!

The CB have stated many times they will not relax the rules. Only tighten them if needed. And the government has no control over the CB, it's dictated to from Europe, and they don't care about FTB'ers wanting to overload themselves with debt, only about the stability and prudent lending by the banks.

mel123

Flatzie_poo wrote: »

Thank the Central bank for that!

IMO, I think they'll either make the deposit rules more lax, or increase the amount of exemptions the banks can offer to the public.

I don't see this happening without a new government playing a white knight to woo the general public for votes closer to an election time IMO.

But here's hoping I'm wrong!

Why would you be hoping you are wrong? We dont want another boom in the housing market, look where it got us the last time!

Flatzie_poo

mel123 wrote: »

[/B]

Why would you be hoping you are wrong? We dont want another boom in the housing market, look where it got us the last time!

illustrative example - 2 separate couples are saving.

Couple A smokes, drinks and is careless with money in general.

Combined income €90k. Disposable income €20k

Couple B doesn't smoke, doesn't drink and is careful with money in general.

Combined income €90k. Disposable income 28k.

Assuming in this example that they have the deposit to hand, the CB treats them in the exact same manner. 3.5 times their salary, whilst couple B have a far superior disposable income.

The process is not black and white. People's circumstances are not black and white. So the means test shouldn't be either.

Just because you amend CB's rules somewhat does not mean we're 2 years away from being back to 2007 :rolleyes:

PhoenixParker

Flatzie_poo wrote: »

illustrative example - 2 separate couples are saving.

Couple A smokes, drinks and is careless with money in general.

Combined income €90k. Disposable income €20k

Couple B doesn't smoke, doesn't drink and is careful with money in general.

Combined income €90k. Disposable income 28k.

Assuming in this example that they have the deposit to hand, the CB treats them in the exact same manner. 3.5 times their salary, whilst couple B have a far superior disposable income.

The process is not black and white. People's circumstances are not black and white. So the means test shouldn't be either.

Just because you amend CB's rules somewhat does not mean we're 2 years away from being back to 2007 :rolleyes:

So?

Smoking, drinking and carelessness with money will show up with missed bills and a lack of savings. The banks can put limits offer borrowers loan amounts below 3.5 times income if they believe a buyer are at additional risk of default due to something in their financial history. They regularly do to couples just like Couple B, because in spite of Couple B's responsible lifestyle they have two kids and therefore a lower disposable income then couple A.

The banks can do what they like about individual circumstances like these, they just need to keep to the limits when doing so.

Michael D Not Higgins

Flatzie_poo wrote: »

illustrative example - 2 separate couples are saving.

Couple A smokes, drinks and is careless with money in general.

Combined income €90k. Disposable income €20k

Couple B doesn't smoke, doesn't drink and is careful with money in general.

Combined income €90k. Disposable income 28k.

Assuming in this example that they have the deposit to hand, the CB treats them in the exact same manner. 3.5 times their salary, whilst couple B have a far superior disposable income.

The process is not black and white. People's circumstances are not black and white. So the means test shouldn't be either.

Just because you amend CB's rules somewhat does not mean we're 2 years away from being back to 2007 :rolleyes:

That's far too much detail for a Central Bank to police. That kind of discretion should be done at the individual bank underwriting criteria.

Flatzie_poo

Michael D Not Higgins wrote: »

That's far too much detail for a Central Bank to police. That kind of discretion should be done at the individual bank underwriting criteria.

Agreed - that's my point.

The bank should not have be strickly required to use up one of their CB rule exemptions in a case such as the above.

Michael D Not Higgins

Flatzie_poo wrote: »

Agreed - that's my point.

The bank should not have be strickly required to use up one of their CB rule exemptions in a case such as the above.

Ah but that wasn't my point. I think the lending rules are fine as they are. The 3.5 LTI prevent borrowers overextending and the LTV protects the banks. My point would be if one couple had a high cost of living then the bank should limit their credit if they see them as a higher risk.

Which do you suggest? Higher LTI for the thrifty? Higher LTV? The CBI rules are deliberately high level and the exemptions are there for such cases the bank deems of sufficient risk to extend to certain borrowers.

PhoenixParker

Flatzie_poo wrote: »

Agreed - that's my point.

The bank should not have be strickly required to use up one of their CB rule exemptions in a case such as the above.

Why would they?

They can give couple B a 3.5 LTI and couple A a 3.0 LTI.

Simple.

Flatzie_poo

PhoenixParker wrote: »

Why would they?

They can give couple B a 3.5 LTI and couple A a 3.0 LTI.

Simple.

Why should couple B be limited to 3.5x their salary of their smart and rational enough to be able to afford more?

If they show that they can afford 3.8x or 4x their salary and live comfortably, with financial evidence showing this - The bank should be allowed lend responsibly, and within reason to a persons circumstances - if financial backup is provided.

Flatzie_poo

Flatzie_poo wrote: »

If they show that they can afford 3.8x or 4x their salary and live comfortably, with financial evidence showing this - The bank should be allowed lend responsibly, and within reason to a persons circumstances - if financial backup is provided.

But the banks are already allowed to make exceptions as things stand. They may well give couple B 4x their salary if they have a strong case.

The rules are annoying, personally the LTI rules are limiting me in what I can borrow compared to what I could afford, I will be asking for more than 3.5x my salary when applying and will see if they give me an exception. That being said without the rules prices would go up much faster so I'd rather try get an exception and get ahead of others (or revise down my budget) rather than everyone be on the same playing field thus prices rising faster.

PhoenixParker

Flatzie_poo wrote: »

Why should couple B be limited to 3.5x their salary of their smart and rational enough to be able to afford more?

If they show that they can afford 3.8x or 4x their salary and live comfortably, with financial evidence showing this - The bank should be allowed lend responsibly, and within reason to a persons circumstances - if financial backup is provided.

Because the central bank have thoroughly analysed the evidence across hundreds of thousands of borrowers and concluded that above LTI multiples of 3.5 the likelihood of default rises rapidly for many reasons, many of them beyond the borrowers control, thus exposing the bank to excess risk.

Only the most cautious, prudent and stable individuals should therefore be allowed to go above the 3.5 multiple and those individuals should make up a small proportion of the overall market share.

Hence if the bank judges them to be a good risk, they must use up one of their exemptions to show the banks belief in the couple.

None of this makes it any more difficult for those of us saving for a mortgage to actually buy a house. What it means is that instead of Couple A having access to 500K and couple B having access to 510K, therefore 1 Barn Road, Dublin 11 goes for 510K, now couple A have access to 250K and couple B have access to 300K and 1 Barn Road goes for 300k.

I know which I regard as the better outcome, and I'm delighted that the house we've signed contracts for wasn't E40K higher which I have every reason to believe it would have been if the CB rules hadn't come into place.

Flatzie_poo

Kamden Small Ivy wrote: »

But the banks are already allowed to make exceptions as things stand. They may well give couple B 4x their salary if they have a strong case.

The rules are annoying, personally the LTI rules are limiting me in what I can borrow compared to what I could afford, I will be asking for more than 3.5x my salary when applying and will see if they give me an exception. That being said without the rules prices would go up much faster so I'd rather try get an exception and get ahead of others (or revise down my budget) rather than everyone be on the same playing field thus prices rising faster.

My point is that there is a limited number of exemptions. If proven they can afford outside of 3.5x their salary and live comfortably- a bank should not lose one of their limited exemptions.

PhoenixParker

Flatzie_poo wrote: »

My point is that there is a limited number of exemptions. If proven they can afford outside of 3.5x their salary and live comfortably- a bank should not lose one of their limited exemptions.

But couples like couple B are the whole reason there ARE exemptions.
The banks desire to lend everyone as much money as possible by pretending everyone is a couple B is the reason there are a LIMITED number of exemptions.

Flatzie_poo

Flatzie_poo wrote: »

My point is that there is a limited number of exemptions. If proven they can afford outside of 3.5x their salary and live comfortably- a bank should not lose one of their limited exemptions.

Yes there are a limited number of exemptions but there are also a limited number of people who will qualify for an exemption and that's a good thing.

The bank should have to use an exemption on these people because they are not within the rules. If you change the rules so that these people get in without an exemption then lots more will get in also and the exemptions will be used on other people who would not have gotten an exemption therefore much more people will have access to funds and prices will go up.

As mentioned in the post above exemptions are allowed specifically because of couples like you describe.

Flatzie_poo

Kamden Small Ivy wrote: »

If you change the rules so that these people get in without an exemption then lots more will get in

If you can afford the repayments, in steady employment and still meet strict financial means, then those people should "get in"

On your other points, just because bank's have exemptions, doesn't mean they have to use every single one of them.

I got my house cheaper since these rules came in, I got an exemption to access more than 3.5x my salary. I've benefited from these rules first-hand but that does not mean it's right.

I've drawn-down more that 3.5x times my salary and still live very comfortably. I shouldn't be limited to any amount other than what I can afford comfortably.

People's means aren't black and white - that's why the process should not be.

PhoenixParker

Flatzie_poo wrote: »

If you can afford the repayments, in steady employment and still meet strict financial means, then those people should "get in"

On your other points, just because bank's have exemptions, doesn't mean they have to use every single one of them.

I got my house cheaper since these rules came in, I got an exemption to access more than 3.5x my salary. I've benefited from these rules first-hand but that does not mean it's right.

I've drawn-down more that 3.5x times my salary and still live very comfortably. I shouldn't be limited to any amount other than what I can afford comfortably.

People's means aren't black and white - that's why the process should not be.

Who exactly do you think the bank should be using up their exemptions on?

Bradz213

Just out of curiosity, what multiple of combined salaries were people getting in 2007 etc? 4.5 times? Higher?

omb0wyn5ehpij9

I really don't understand how people think the rules that have been implemented are a bad thing. And bare in mind, I am 32, a first time buyer, and will more than likely be buying on my own. So these rules have a massive impact on me.

People borrowed way beyond their means, and they have to live with that for a long, long time.

Flatzie_poo

PhoenixParker wrote: »

Who exactly do you think the bank should be using up their exemptions on?

I don't think they should be limited in their "exemptions."

If it's comfortably afforable - lend over 3.5x.

If not comfortably affordable - cap it at 3.5x times.

Simple.

Michael D Not Higgins

Bradz213 wrote: »

Just out of curiosity, what multiple of combined salaries were people getting in 2007 etc? 4.5 times? Higher?

From here:
http://www.centralbank.ie/regulation/poldocs/consultation-papers/Documents/CP87%20Macro-prudential%20policy%20for%20residential%20mortgage%20lending/Macro-prudential%20policy%20for%20residential%20mortgage%20lending.pdf

A third were higher than 4.5, a third were between 3.5 and 4.5 and a third up to 3.5.

Flatzie_poo

Flatzie_poo wrote: »

If you can afford the repayments, in steady employment and still meet strict financial means, then those people should "get in"

They should get in, by getting an exemption.

Flatzie_poo wrote: »

On your other points, just because bank's have exemptions, doesn't mean they have to use every single one of them.

I got my house cheaper since these rules came in, I got an exemption to access more than 3.5x my salary. I've benefited from these rules first-hand but that does not mean it's right.

I've drawn-down more that 3.5x times my salary and still live very comfortably. I shouldn't be limited to any amount other than what I can afford comfortably.

People's means aren't black and white - that's why the process should not be.

But banks will lend more than they should, to people they shouldn't if they aren't forced to follow a set of rules and they do use all the exemptions and use them very fast from some of the evidence floating around, most are used up at the start of the year.

As far as benefiting from the rules, isn't it only right that people who deserve an exemption benefit from the rules and those that are not as prudent miss out so to speak and don't they have access to money they shouldn't have which will drive prices up.

Prices are already rising fast, its very annoying for someone like myself who is looking to buy soon and houses getting more expensive every month. Particularly because they had dropped so low during the recession. If I was in the position I am now two years ago I could probably have bought two houses as some I'm looking at, apartments in particular have nearly doubled in price.

angeldelight

Surely the reason for limiting the exemptions is because the banks have proven they can't be trusted??

We're going for a second viewing on Saturday with a view to making an offer. It's all starting to get very real!

PhoenixParker

Flatzie_poo wrote: »

I don't think they should be limited in their "exemptions."

If it's comfortably afforable - lend over 3.5x.

If not comfortably affordable - cap it at 3.5x times.

Simple.

Ah yes, the strategy employed for 2000-2007 and then again from 2013 - 2015.

I'd prefer we kept in unsimple as the CB and their data analysis suggests.

PhoenixParker

angeldelight wrote: »

Surely the reason for limiting the exemptions is because the banks have proven they can't be trusted??

We're going for a second viewing on Saturday with a view to making an offer. It's all starting to get very real!

Good luck and do a good dig into the corners before you offer.
Count up the sockets!

Michael D Not Higgins

Flatzie_poo wrote: »

I don't think they should be limited in their "exemptions."

If it's comfortably afforable - lend over 3.5x.

If not comfortably affordable - cap it at 3.5x times.

Simple.

If there's no limit in exemptions then there's no point in the rules.

Bradz213

Kamden Small Ivy wrote: »

They should get in, by getting an exemption.



But banks will lend more than they should, to people they shouldn't if they aren't forced to follow a set of rules and they do use all the exemptions and use them very fast from some of the evidence floating around, most are used up at the start of the year.

As far as benefiting from the rules, isn't it only right that people who deserve an exemption benefit from the rules and those that are not as prudent miss out so to speak and don't they have access to money they shouldn't have which will drive prices up.

Prices are already rising fast, its very annoying for someone like myself who is looking to buy soon and houses getting more expensive every month. Particularly because they had dropped so low during the recession. If I was in the position I am now two years ago I could probably have bought two houses and I'm not even joking.

This.
Theres no problem with the 3.5. Banks will throw money at you when they can. They have no duty of care to people

Flatzie_poo

Michael D Not Higgins wrote: »

If there's no limit in exemptions then there's no point in the rules.

That's not what I said. My point is that there are no limits in the number of "exemptions" granted where affordable.

Where not affordable, the current 3.5x rules kick in.

Flatzie_poo

Flatzie_poo wrote: »

I don't think they should be limited in their "exemptions."

If it's comfortably afforable - lend over 3.5x.

If not comfortably affordable - cap it at 3.5x times.

Simple.

The bank will decide everyone is comfortably able to afford then though and give everyone who wants it an exemption and we are back to prices rising. Even if more people should be getting an exemption than there are exemptions available, limiting them helps to keep prices down to some degree anyway.

Also limiting exemptions limits the risk a bank is taking.

And to reiterate the salary multiplier rule is affecting me very much as it's limiting what I can borrow without getting an exemption (which I may or may not qualify for).

Michael D Not Higgins

Flatzie_poo wrote: »

That's not what I said. My point is that there are no limits in the number of "exemptions" granted where affordable.

Where not affordable, the current 3.5x rules kick in.

The exemptions are there for when it is affordable. The CBI has the economic theory that backs up that 3.5 is the right multiple limit for affordability for most instances with the knowledge that there will be exceptions to this rule. That's why there are exemptions.

SarahMollie

Flatzie_poo wrote: »

That's not what I said. My point is that there are no limits in the number of "exemptions" granted where affordable.

Where not affordable, the current 3.5x rules kick in.

Yes but define "affordable"

This would mean that the banks themselves make that distinction, and they've proved by bankrupting our country that they cannot be trusted to do this, as greed will always get in their way.

Having a ceiling on the exceptions means that must choose only their very best prospective customers to afford such exceptions to.

Flatzie_poo

PhoenixParker wrote: »

Ah yes, the strategy employed for 2000-2007 and then again from 2013 - 2015.

I'd prefer we kept in unsimple as the CB and their data analysis suggests.

Banks were borderline unregulated in 2007. That's just a ridiculous comparison.

My point keeps regulation in tow, and provides that those who can afford more, and are still lending responsibly to their means.

Flatzie_poo

Flatzie_poo wrote: »

That's not what I said. My point is that there are no limits in the number of "exemptions" granted where affordable.

Where not affordable, the current 3.5x rules kick in.

But if exemptions are limitless banks will "decide" a lot more people can afford more than 3.5x their salary. Where as with limited exemptions only the strongest cases get one.

Flatzie_poo

SarahMollie wrote: »

Yes but define "affordable"

This would mean that the banks themselves make that distinction, and they've proved by bankrupting our country that they cannot be trusted to do this, as greed will always get in their way.

Having a ceiling on the exceptions means that must choose only their very best prospective customers to afford such exceptions to.

They're regulated. They currently keep back-up on the exemptions granted. I'm just saying don;t have "x" number of these, judge it on a case by case basis. Where those who can afford are approved. Make it dynamic.

They can be audited by CB yearly on this.

Flatzie_poo

Kamden Small Ivy wrote: »

But if exemptions are limitless banks will "decide" a lot more people can afford more than 3.5x their salary. Where as with limited exemptions only the strongest cases get one.

That's not the case. They have more exemptions in January 2016 than November 2016. a stronger applicant in November compared to one approved in January, could be rejected due to the number of exemptions available. That's why I don't agree with a limited number of these.

SarahMollie

Flatzie_poo wrote: »

Banks were borderline unregulated in 2007. That's just a ridiculous comparison.

My point keeps regulation in tow, and provides that those who can afford more, and are still lending responsibly to their means.

You cant have it both ways. You want to keep regulation, yet you want to weaken the Central Bank by allowing the banks to self regulate.

That just doesnt work.

Flatzie_poo

Michael D Not Higgins wrote: »

The exemptions are there for when it is affordable. The CBI has the economic theory that backs up that 3.5 is the right multiple limit for affordability for most instances with the knowledge that there will be exceptions to this rule. That's why there are exemptions.

Exactly. Not in all instances. This is key to my point.

Michael D Not Higgins

Flatzie_poo wrote: »

That's not the case. They have more exemptions in January 2016 than November 2016. a stronger applicant in November compared to one approved in January, could be rejected due to the number of exemptions available. That's why I don't agree with a limited number of these.

The fact that the bank has to hold off buyers to the next quarter to use up more exemptions shows the poor handling from their side. They can't wait to lend people more money so end up using all their exemptions for a quarter in less than a month.

Flatzie_poo

Flatzie_poo wrote: »

That's not the case. They have more exemptions in January 2016 than November 2016. a stronger applicant in November compared to one approved in January, could be rejected due to the number of exemptions available. That's why I don't agree with a limited number of these.

Its the banks that's choosing to use them up early in the year, I'd imagine the CB envisaged they would spread them out over the year but the banks decided to grant as many as they can as fast as they can.

Flatzie_poo

SarahMollie wrote: »

You cant have it both ways. You want to keep regulation, yet you want to weaken the Central Bank by allowing the banks to self regulate.

That just doesnt work.

I never said the banks should self-regulate. Not anywhere.

SarahMollie

Flatzie_poo wrote: »

That's not the case. They have more exemptions in January 2016 than November 2016. a stronger applicant in November compared to one approved in January, could be rejected due to the number of exemptions available. That's why I don't agree with a limited number of these.

Then they'll get it in January the next year. Or the banks learn not to give away the exceptions so early in the year.

Property is a slow business, and I'd rather the odd buyer was inconvenienced for a few months, than let the banks write their own rules again.

SarahMollie

Flatzie_poo wrote: »

I never said the banks should self-regulate. Not anywhere.

Just that they should be able to define what "affordable" means.

Being allowed to make up their own rules is self regulation.

Flatzie_poo

SarahMollie wrote: »

Then they'll get it in January the next year. Or the banks learn not to give away the exceptions so early in the year.

Why not improve what's there? If they are going to get approved, approved them. They shouldn;t have to wait a few months if their financially prudent.

SarahMollie wrote: »

Property is a slow business, and I'd rather the odd buyer was inconvenienced for a few months, than let the banks write their own rules again.

Where have I once said banks should write their own rules?

SarahMollie

Flatzie_poo wrote: »

Why not improve what's there? If they are going to get approved, approved them. They shouldn;t have to wait a few months if their financially prudent.



Where have I once said banks should write their own rules?

1. Its not the borrowers financial prudence I'd be worried about.

2. What is allowing them to set affordability criteria if not writing their own rules.

PhoenixParker

Flatzie_poo wrote: »

Why not improve what's there? If they are going to get approved, approved them. They shouldn;t have to wait a few months if their financially prudent.



Where have I once said banks should write their own rules?

If the central banks aren't writing the rules about a % of exemptions, then who is?

Flatzie_poo

SarahMollie wrote: »

1. Its not the borrowers financial prudence I'd be worried about.

2. What is allowing them to set affordability criteria if not writing their own rules.

1) Then if borrowers are prudent, and borrow what's repayable, what's your issue?

2) The Central Bank. Post yearly audit, fine or restrict the lending of any entity found to have lent irresponsibly.

Flatzie_poo

PhoenixParker wrote: »

If the central banks aren't writing the rules about a % of exemptions, then who is?

See above.

Flatzie_poo

Flatzie_poo wrote: »

1) Then if borrowers are prudent, and borrow what's repayable, what's your issue?

2) The Central Bank. Post yearly audit, fine or restrict the lending of any entity found to have lent irresponsibly.

But even the most prudent borrower is still a risk so limiting the number of people who get exemptions is still making the banks loan book more sustainable.

Without the number of exemptions being limited the amount of money being borrowed would shoot rapidly and therefore so would house prices.

SarahMollie

Flatzie_poo wrote: »

1) Then if borrowers are prudent, and borrow what's repayable, what's your issue?

2) The Central Bank. Post yearly audit, fine or restrict the lending of any entity found to have lent irresponsibly.

1.Again, whos defining their prudence? You're using subjective terms as if they're objective.

2. Closing the stable door once the horse has bolted. We've seen how well this works. And again, if you don't have set criteria, how can the CB impose fines without an objective standard to compare it against. It just doesnt work.

Not to mention the knock on effect that your suggestion would have on house prices, which does not benefit the same consumer that you're apparently advocating for.

We finally have a good, strong system in place, stop trying to undermine it.

PhoenixParker

Flatzie_poo wrote: »

See above.

So instead of the banks having a nice clear standard to meet which can be readily audited by the CB, they should have a huge fuzzy line that they can dip their toe over, which is difficult for the CB to audit and which exposes the banks to risk of unexpectedly failing a CB audit and thus getting fined?

That makes no sense.

SarahMollie

PhoenixParker wrote: »

So instead of the banks having a nice clear standard to meet which can be readily audited by the CB, they should have a huge fuzzy line that they can dip their toe over, which is difficult for the CB to audit and which exposes the banks to risk of unexpectedly failing a CB audit and thus getting fined?

That makes no sense.

This!

Blurring the lines only gives the banks room to misbehave, benefiting only themselves.