Irish Property Market chat II - *read mod note post #1 before posting*

There are online affordability calculators that you can use to compare if you want.

Example:

$100,000 Gross income

$100,000 deposit

$2,000 per month living expenses

$500 per month other loans etc.

They tell you that a mortgage of $342k is affordable for you so that you can buy somewhere up to $442k. Less than what you would get from an Irish bank.

Sorry if this has been posted already.

This is the Portuguese government starting the consultation process before implementing a number of things that have been discussed in these threads:

Banning of Air BnBs

Banning of golden visas

Forced rental of unoccupied homes

https://elpais.com/economia/2023-02-17/portugal-revoluciona-su-politica-de-la-vivienda-prohibira-nuevos-pisos-turisticos-y-elimina-los-visados-de-oro.html

Supply is not improving, their is endless planning approved for developments that are not viable to build and that is only getting worse with financing costs. How much more can the taxpayer subsidize a new house for? You can currently get a 30k deposit and 70% of a house, what's next you can buy half a house?

Your calculations are incorrect.

Your imaginary couple are on 50k each, so 100k combined. They decide they want to borrow 3.5 times their income, so borrow 350,000.

At 2.5% interest, this would come to €1251.23/month.

At 4.5% interest, this would come to €1656.40/month, or a monthly increase of €405.17/month (or €4862.04 per year).

At the partners in this imaginary couple each earn €50k a year, this means they have a marginal tax rate of 48.5% (40% income tax, 4.5% USC, 4% PRSI). In order to get a net €4862.04 per year, they would need a combined pay increase of €9440.85 (or just under 9.5% of their 100k combined gross).

If interest rates are going to remain high for a period of a few years (which they would need to, in order to conceivably have a material impact on house prices), it would suggest that inflation will remain high over a period of years. If that is the case, it doesn't seem unreasonable to believe that our imaginary couple would be able to get a combined salary increase of 9.5% over the space of 1-2 years, which would offset the increase in interest rates.

Also, our imaginary couple here would have net monthly take home pay of €6342 (3171*2).

At 4.5%, their mortgage payment of €1656.40 would be just over 26% of their take home, which is still a very comfortable level of payment.

Naturally they'd prefer to pay less, but there's a big difference between what someone is willing to pay (i.e., what might have an impact on prices) and what someone would prefer to pay but will ultimately exceed to get what they want.

I think if both people in this couple are working in the public sector they may expect that increase and maybe even a bit higher but private sector is languishing way behind in this regard over 50% of all workers got no pay rise last year so when you note that 100% of the public sector (340k employees out of 2.1 million) did it means the % of private sector employees getting no payrise is up past 60%. I cannot see pay rises going on in companies struggling with other high cost issues and tech companies have in the majority "battened down the hatches" there wont be many pay rises in the tech sector this year. Your point is very well made but this assumption is way off the mark with regards to pay rises IMO

Agree with this. Rate rises only big factor for new buyers really. I don't see people getting into difficulties. I just think mortgage repayments being higher from rate rises will have dampening effect on demand on the market. No idea if that will be just lower price inflation (likely) or price falls. I dont see any crash in house prices

All those possibilities you mentioned would be an issue at any time though.

The point I was making is two-fold:

1) The impact of interest rate rises only monthly mortgage payments is overstated. The original post suggested that the impact of a jump from 2.5% to 4.5% would result in an annual increase in payments of €7000, when it is actually €4862. That is an overstatement of basically 44%.

2) Due to the LTI limits we have had in place, affordability on existing and new mortgages is very comfortable for the vast majority of people. I know plenty of people who have bought within the last 2-3 years or are currently looking at buying, and not one of them has expressed concern at the monthly payments (displeasure, sure, but not any concern at the viability of making the payments). What everyone has struggled with is being able to qualify for mortgages they would be able to afford to pay, due to the LTI rules (please note, I am absolutely not suggesting the LTI rules should be relaxed further, I don't think they should have even been increased to 4x).

When we purchased our home, our mortgage payment was ~€1700/month. To rent an identical house (at the time) in the same development would have been cost just under €3000/month. Even if mortgage interest rates had been double what they were at the time, our monthly payment would have increased by a bit under €700/month, to ~€2400/month.

If the monthly repayments had been €2400/month, would I have been displeased that I wasn't repaying €1700/month instead? Absolutely!

Would I have opted to rent at €3000/month instead? Absolutely not!

They put themselves for sale.

The 4.5% was based on your post. It was your figure and my post was based off that.

9% wage increase over 2 years in a time of high inflation isn't an unreasonable expectation, especially if people feel more urgently that they need to secure raises.

You will notice I mentioned both people who bought recently and who are currently looking to buy. The point was that the monthly repayment isn't the real concern for most people, it's getting access to drawdown a large enough mortgage that is the problem.

As for suggesting I am being misleading (quite unfair to make that statement when I provided all the calculations), you don't really seem to understand how mortgages work. My 2 figures, with a difference of 400/month between them, were both for 35 year terms.

The breakdown between capital and interest simply doesn't matter to the average person.

They are concerned about one thing and one thing only: What will the monthly repayment be.

A 350000 mortgage over 35 years at 2.5% is 1251.23/month.

A 350000 mortgage over 35 years at 4.5% 1656.40/month.

This is a difference of 405.17/month over the duration of the mortgage, or 4862.04. Not "7k pa more".

Let's pretend I simply chose "going for longer term" to make it look cheaper.

350000 at 2.5% over 20 years: 1854.66

350000 at 4.5% over 20 years: 2214.27

Funnily enough, the 20 year term makes the monthly difference smaller (359.61 per month or 4315.32 per year)

If you want to be really, really, *really* pedantic, you'd pay very close to 7000 extra interest (but not total repayments) in year 1 (and year 1 only) in a 2.5% vs 4.5% scenario.

Each year after that, the difference in interest would decline, which is why the difference in repayments is ~4800/year rather than 7000/year.

Im seeing the same in Limerick except now anything decent looking starts at €320k in stead of €250k like it did a while back.