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New mortgage multiples for FTB- market implications

  • 22-10-2022 9:10am
    Registered Users Posts: 5,970 ✭✭✭

    Whats the feeling on the 4 times earnings rule change for first time buyers ? How will the market be affected ? Will it make much difference?


  • Registered Users Posts: 1,735 ✭✭✭pinksoir

    It'll be partially offset by interest rate rises as they continue to come into play.

    But in general it's adding more credit to a system characterised by high demand and critically low supply so it will only serve to inflate prices.

    The only more inopportune time to make the change would have been during the previous 2 years where mania in the market caused bidding wars that were only constrained by access to credit. Makhlouf washed his hands of it by saying that it's not the CBIs responsibility, and rather subtly pointed a finger at the government's failings over the last years. Which is fair enough, and true. But it would have been more prudent to wait a period to implement these changes, and rather see how interest rate rises affected lending first.

    My prediction is we'll see a great many people waiting til the rules come into effect, and then that short term pent up demand will result in a huge number of bidding wars quickly driving house price inflation. Of course, this inflation will not just be seen in lower priced homes as movers will suddenly have an extra 10-15% in equity in the house they're selling and will put that towards their own bidding war on their next home.

    We now find ourselves in a situation in which we're relying on banks to curtail house price inflation via their other lending rules. Let's see how that plays out.

  • Registered Users Posts: 5,970 ✭✭✭handlemaster

    True January could see a flurry of FTBs searching.

  • Registered Users Posts: 446 ✭✭Mandzhalas

    I am hopping to go sale agreed on property I'm buying this year, I think prices will increase by 10-15%, and especially on houses in 300 - 400k segment.

  • Registered Users Posts: 5,970 ✭✭✭handlemaster

    Lol would that be the bracket your buying in ? I would think the FTB for the different areas would increase. Will there be such a thing as a property below 220 k in Dublin any more ?

  • Registered Users Posts: 1,735 ✭✭✭pinksoir

    It will all hinge on how quickly banks raise interest rates and up to how much. I can also see an environment of higher interest rates persisting into the future. The question is, will the ECB follow the Fed BOE etc and raise them up to 4/5%? We're trailing those economies by a good few months as the ECB left it longer to begin to raise rates. But if all things remain equal we could be seeing the same thing happen in the EU, just offset by that number of months. So maybe what's happening in those economies is an indicator of what will happen here.

    In the end we could potentially be looking at interest rates around 6%+ for borrowers. You can do the maths, but basically that would massively eat into the amount of money they will be able to borrow.

    So this type of stuff will temper the effect of 4x income as ability to repay will be a greater determiner of how much a bank will loan.

    Either way, early next year is likely to be a car crash in terms of price inflation, unless banks start to pass on the rate rises in a more meaningful way. We have a few months left before that, and a few more ECB rate rises to go, so it's impossible to call at this point.

    It's probable that this 4x move will serve to keep prices higher than they would have been in the short term, but I still reckon that prices will begin to fall if/when interest rate rises come properly into effect.

    But who knows, the property market is one wild card after another.

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  • Registered Users Posts: 12,295 ✭✭✭✭markodaly

    As I mentioned in another thread, banks will stress test the ability to repay based on the current mortgage rate +2%.

    Not every FTB will meet the criteria of being able to borrow 4 times their income based on that.

  • Administrators Posts: 52,188 Admin ✭✭✭✭✭awec

  • Registered Users Posts: 12,295 ✭✭✭✭markodaly

    Always you say? Was it like that during the 2000s leading up to the crash?

  • Administrators Posts: 52,188 Admin ✭✭✭✭✭awec

    Obviously not, that was the problem back then - unchecked credit.

    But for about a decade now this is how it has worked. When people were running around waving their hands in the air about how the end was nigh when the 4x limit was released last week there were people pointing out that it really just means more people are going to be constrained by the existing bank rules rather than the central bank rules.

  • Registered Users Posts: 8,908 ✭✭✭tom1ie

    What it will is just put more people in more debt at a time when interest rates are climbing globally at the same time as not increasing supply.

    Absolutely ludicrous move from the central bank.

    Post edited by tom1ie on

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  • Registered Users Posts: 8,184 ✭✭✭riclad

    It makes no sense to me, it will just increase house prices when the no of houses for sale is very limited and demand is high.did the central bank not learn anything from the boom, house price crash in 2008.I can think of no logical reason to do this.

    someone wise said those who do not learn from history are doomed to repeat it . We have seen before young people will borrow as much as they can in order to buy a house .the role of the central bank is to put in place sensible rules and limits on lending especially in the area of mortgages for first time buyers

    the government are looking at all options re housing for refugees from ukraine ,modular housing,using old government buildings, but there needs to be also action to increase the no of housing units built all over the country for the public and the health of the economy