Why use this system of mortgages?

Dannyboy83 · 06-04-2010 12:08AM #1

Why is this system of mortgages with the 8%, 16% deposit used?

I know plenty of people who would happily buy a house with a 100% mortgage, but they cannot possibly get the deposit together in this climate.
Is it designed like this to prevent an Israel/Palestine type situation?
It makes sense for investment properties, but why use this system for primary residences?

ei.sdraob · 06-04-2010 12:13AM

if you cant scrape together 23K for a 10% deposit how can you be expected to service a mortgage and interest?

seriously 100% mortgages was one of those braindead things that got us into so much ****

i suppose i better shut up now, before the "im entitled to a house" brigade shows up

RichardAnd · 06-04-2010 12:17AM

ei.sdraob wrote: »

seriously 100% mortgages was one of those braindead things that got us into so much ****/QUOTE]

Nooo, it makes perfect business sense to give a guy earning 30k a year 500k to buy a cardboard box apartment in Dublin.

ei.sdraob · 06-04-2010 12:22AM

RichardAnd wrote: »

Nooo, it makes perfect business sense to give a guy earning 30k a year 500k to buy a cardboard box apartment in Dublin.

i can see it now

and once we (eventually) realize that he cant possibly ever repay for his shoebox (or he looses his job), we can call up Brian Lenihan and dump our toxic subprime loans on the state and then skip country and drink margaritas

its a plan!

Dannyboy83 · 06-04-2010 12:29AM

ei.sdraob wrote: »

if you cant scrape together 23K for a 10% deposit how can you be expected to service a mortgage and interest?

seriously 100% mortgages was one of those braindead things that got us into so much ****

i suppose i better shut up now, before the "im entitled to a house" brigade shows up

I disagree.

I know plenty of people paying rent of €800 to €900 per month.
But there are houses available on mortgage for €500 to €600 per month.

Having a mortgage would actually free up a lot of money which they could use to pay down the capital sum faster.

As long as they continue renting, it will be near impossible to accumulate the funds necessary for a deposit(unless their Daddy gives it to them!)

Worse case scenario with interest rate rises is that they would be paying the equivalent sum as they would for renting. There is little fear of the property market "overheating" in modern Ireland.

So that argument holds no water at all.

I'm a bit cynical, but I think its to keep the rental and investment market inflated.

LeBash · 06-04-2010 12:31AM

ei.sdraob wrote: »

if you cant scrape together 23K for a 10% deposit how can you be expected to service a mortgage and interest?

seriously 100% mortgages was one of those braindead things that got us into so much ****

i suppose i better shut up now, before the "im entitled to a house" brigade shows up

Bring back the 110% mortages I say. That way we can give the people that cant afford them the 10% headstart and sell the mortage to an unsuspecting bank that wont ask questions in another country.

Of course our own banks would probably inadvertantly buy them back at twice the rate.

I think a more worrying situation is what we are going to do with all the houses and appartments that are off the market that are keeping an antificially high price on everything else. I fear there will be several state bulldozers bought soon or I'll be buying houses and appartments for 50 quid soon. Which of course, I will need 5 euro deposit for.

I do totally agree with having at least 10% of a house up front for more than one reason.

Dannyboy83 · 06-04-2010 12:34AM

RichardAnd wrote: »

ei.sdraob wrote: »

seriously 100% mortgages was one of those braindead things that got us into so much ****/QUOTE]

Nooo, it makes perfect business sense to give a guy earning 30k a year 500k to buy a cardboard box apartment in Dublin.

But what about a girl earning in a secure job, earning 36k per year who wants to buy a normal 3bed semi in Cork for 180k?
She pays €900 per month in rent but can't save much as her partner is unemployed, she can easily manage repayments on a house tho.

Dannyboy83 · 06-04-2010 12:36AM

LeBash wrote: »

I do totally agree with having at least 10% of a house up front for more than one reason.

Well............I'm wondering what those reasons are, care to elaborate?

Victor · 06-04-2010 12:38AM

Dannyboy83 wrote: »

I know plenty of people who would happily buy a house with a 100% mortgage, but they cannot possibly get the deposit together in this climate.

If they can't afford to save, can they afford a mortgage and the commitment that comes with it?

Is it designed like this to prevent an Israel/Palestine type situation?

You'll have to explain that bit.

It makes sense for investment properties,

Why do you say that?

but why use this system for primary residences?

It means that both the bank and the buyer have invested in the property. People tend to be more wary when its their own money is at risk.

ei.sdraob · 06-04-2010 12:42AM

Dannyboy83 wrote: »

I disagree.

I know plenty of people paying rent of €800 to €900 per month.
But there are houses available on mortgage for €500 to €600 per month.

Having a mortgage would actually free up a lot of money which they could use to pay down the capital sum faster.

As long as they continue renting, it will be near impossible to accumulate the funds necessary for a deposit(unless their Daddy gives it to them!)

Worse case scenario with interest rate rises is that they would be paying the equivalent sum as they would for renting. There is little fear of the property market "overheating" in modern Ireland.

So that argument holds no water at all.

I'm a bit cynical, but I think its to keep the rental and investment market inflated.

yes because interest rates will stay this for the next few decades (duration of mortgage)

Dannyboy83 wrote: »

But what about a girl earning in a secure job, earning 36k per year who wants to buy a normal 3bed semi in Cork for 180k?
She pays €900 per month in rent but can't save much as her partner is unemployed, she can easily manage repayments on a house tho.

jesus are you for real? who has a safe job in this day and age? is she a PS worker or something?

would she afford repayments if rates double or more?

i actually cant believe this thread, after everything that has happened in this country, do some people really have short memories?

@OP do you propose we make the banks lend at low interest for next few decades? and of course because they cant raise money abroad at low interest we can pay them via own taxes! yes that would work great

Dannyboy83 · 06-04-2010 12:42AM

ei.sdraob wrote: »

if you cant scrape together 23K for a 10% deposit

BTW, "scrape together" and "23k" are a rather odd combination I would have thought!

I know one woman who is self employed, her husband works, they have 1 child and rent a 2 bed house.

The most they can save is 500 per month.
So your talking 4 years (with absolutely no unnecessary expenditures such as car repairs etc.) before they can "scrape together" 23k.

ei.sdraob · 06-04-2010 12:45AM

Dannyboy83 wrote: »

BTW, "scrape together" and "23k" are a rather odd combination I would have thought!

I know one woman who is self employed, her husband works, they have 1 child and rent a 2 bed house.

The most they can save is 500 per month.
So your talking 4 years (with absolutely no unnecessary expenditures such as car repairs etc.) before they can "scrape together" 23k.

so? save for 4 years big wow :rolleyes: if they cant save for 4 years how can they pay a mortgage for 35 years (god forbid more)

how would they afford the mortgage if rates double from here effectively wiping out this 500 a month disposable income

why dont you just cut the crap and say it, everyone should be given a house because they are "entitled to one"

LeBash · 06-04-2010 12:47AM

Dannyboy83 wrote: »

Well............I'm wondering what those reasons are, care to elaborate?

Firstly it shows you are responsible enough to have a mortage and for the person taking it out it takes a large chunk off what you have to pay back.

If you default on the mortage, it means the bank have made a profit either way as well.

If you really think about it, it is reasonable and responsible to have it as the buyer and ask for it as the bank. I know house prices spiralling out of control has not helped getting 10% of a mortage together, but there are people defaulting on 99% of thier mortage.

Although, when I was going for one years back, I was told it was a 40 year mortage or nothing and i was well capable of paying back in 20 years, on top of that I had nearly 20% of the total. That was 2004 and Im delighted I was kinda lazy and never actually followed up on it.

Dannyboy83 · 06-04-2010 12:49AM

Victor wrote: »

If they can't afford to save, can they afford a mortgage and the commitment that comes with it?

Yes................easily.......................why not?

If they don't pay their rent...........where will they live?

Maybe I'm misunderstanding you, but how would it be any different between not paying your rent or your mortgage? You would still be homeless?

You'll have to explain that bit.

What I meant there is - a lot of Irish people have the silver spoon.
The only people my age (27) who've bought houses were given the deposit or business start up funds by mammy and daddy.
There are a lot of us who can't possibly hope for that, and its even more unlikely for 'economic immigrants'.

Why do you say that?

1. Because Investors take calculated and sometimes, not-so-calculated risks.
People are less likely to gamble with their home tho, so the risk of a 100% mortgage is far lower for a primary residence

2. Because allow investors to buy up all the property and inflate the market results in a cross between happened here in the last decade, and what is happening in Russia, with a few hundred oligarchs and millions of destitute people.

It means that both the bank and the buyer have invested in the property. People tend to be more wary when its their own money is at risk.

For investment properites, makes perfect sense.
For primary residences, doesn't make at sense at all - it's totally irrational.

ei.sdraob · 06-04-2010 12:51AM

to answer the OPs question

q. Why use this system of mortgages?

a. because the banks do what they want with their money and lend it to whom they want, and think they can make a profit.

what you propose is more of the very same irresponsible lending that drove this country of a cliff.

Dannyboy83 · 06-04-2010 12:54AM

ei.sdraob wrote: »

so? save for 4 years big wow :rolleyes: if they cant save for 4 years how can they pay a mortgage for 35 years (god forbid more)

So lets say they save for realistically 5 years, factoring in mishaps etc.
Now they're no longer eligible for a 35 or 30 year mortgage.
That 5 years they spent paying rent to some investor could have been paying for their own house, to be inherited by their son.

how would they afford the mortgage if rates double from here effectively wiping out this 500 a month disposable income

Well, for a start, they rent for 900, the mortgage repayment they are looking at is 500.
So now they don't have 500 to work with, they have 900.

That interest repayment is sorted.
Money not spent is then invested back in her business for organic growth.

why dont you just cut the crap and say it, everyone should be given a house because they are "entitled to one"

That's not the point of this thread.
You've come to that conclusion yourself.
I'm dealing with a fairly legitimate topic here.

AARRRGH · 06-04-2010 12:55AM

I don't understand the OPs problem.

Saving should be a normal part of life.

You should be saving for a number of years before you buy a property.

If you can't afford to save money, you can't afford an expensive house.

This is pretty basic stuff. There's no conspiracy.

Dannyboy83 · 06-04-2010 12:59AM

So lets say they save for realistically 5 years, factoring in mishaps etc.
Now they're no longer eligible for a 35 or 30 year mortgage.
That 5 years they spent paying rent to some investor could have been paying for their own house, to be inherited by their son.

BTW, to elaborate on this - I don't buy the "rent is dead money" argument.
Sometimes it makes perfect sense to rent - perhaps you plan to flee the country when fianna failure get re-elected?

But what about all of the people who have made up their mind, want to settle, but are just excluded by this deposit issue?

It just doesn't make sense to me.
I own and drive a car which was bought and paid for 100% by a loan.
If I had to have a deposit, I could have never managed it unless I had still lived with my parents - result=everyone's a loser.

Dannyboy83 · 06-04-2010 01:02AM

AARRRGH wrote: »

I don't understand the OPs problem.

Saving should be a normal part of life.

Agreed.

You should be saving for a number of years before you buy a property.

Disagree.
Why?

Just............because?
Or is their a mystical reason which has eluded me?

What about the lads I went to school with, who didn't save at all - they were handed the money by their parents as wedding gifts or whatever.
Or sons of farmers etc.

6 years on for some of them and no sign of karma coming back to bite them for not doing the 'trials'.

If you can't afford to save money, you can't afford an expensive house.

That makes no sense at all.
What if you don't want an expensive house - just a regular house?

This is pretty basic stuff. There's no conspiracy.

I'm not suggesting a conspiracy - just wondering why the system is set up like this.

Dannyboy83 · 06-04-2010 01:07AM

ei.sdraob wrote: »

to answer the OPs question

q. Why use this system of mortgages?

a. because the banks do what they want with their money and lend it to whom they want, and think they can make a profit.

what you propose is more of the very same irresponsible lending that drove this country of a cliff.

No, not at all in fact.

100% mortgages were given out at the peak of the pyramid.
Salaries were inflated, house prices were massively inflated.

Now we are halfway down the pyramid, salaries have deflated a bit, but house prices have massively deflated (over 50% in some parts of Cork).

It's a totally different scenario.

LeBash · 06-04-2010 01:08AM

ei.sdraob wrote: »

to answer the OPs question

q. Why use this system of mortgages?

a. because the banks do what they want with their money and lend it to whom they want, and think they can make a profit.

what you propose is more of the very same irresponsible lending that drove this country of a cliff.

And if you dont like it, you can pay for it via taxes for the rest of your life muhawhawhawhaw!!!!!!!!!!!!!!!!!!!!!

Dannyboy83 · 06-04-2010 01:19AM

LeBash wrote: »

Firstly it shows you are responsible enough to have a mortage and for the person taking it out it takes a large chunk off what you have to pay back.

How does this differ from renting....................at all?

If you don't pay your mortgage, you're on the street.
If you don't pay your rent, you're on the street.

There is no difference.
Any degree of responsibility is in the mind I think!

If you default on the mortage, it means the bank have made a profit either way as well.

I'm not sure the bank would have still made a profit, but if that were the case, it would remove yet another obstacle.

If you really think about it, it is reasonable and responsible to have it as the buyer and ask for it as the bank. I know house prices spiralling out of control has not helped getting 10% of a mortage together, but there are people defaulting on 99% of thier mortage.

But that 99% of their mortgage is likely on a very different scenario.
Do you understand my point?

Mr.X signed up for the 100% mortgage @ 550k (insane) for some shoebox in dumpland, during the height of the pyramid. His salary was a hugely inflated 75k per year. Now he took a 50% pay cut (no sales bonus) and he's shafted.
Will never repay unless he moves country.
Result = nasty business.

Mr.Y signed up for the 100% mortgage @180k (very clever) for a regular 3 bed semi d in Cork, having waited for the collapse, over halfway down the pyramid. Even with a paycut, he still has a healthy €35k per annum, but his partner is unemployed, meaning saving is very slow and somewhat difficult.
As it stands, his mortgage repayments would be approx 1/2 of what he pays for rent (since his wife is not entitled to any social welfare by Irish law).
Having got the 100% mortgage, he will happily and easily repay his mortgage.
Once his wife is back in work, they are seriously sorted and actually pay off their mortgage 10 years early
Result = everyones a winner

Although, when I was going for one years back, I was told it was a 40 year mortage or nothing and i was well capable of paying back in 20 years, on top of that I had nearly 20% of the total. That was 2004 and Im delighted I was kinda lazy and never actually followed up on it.

Agreed.
That was 2004 tho, Ireland was a 'miracle'.
This is 2010, Ireland is a pariah.

ei.sdraob · 06-04-2010 01:22AM

@ Dannyboy83

you are incredibly naive, i wondered how this country got to where it is and now i know, despite all that happened people still would trot out incredible thread like this

i want to see your figures @Dannyboy83, where did you get 500/month from, what are the mortgage details?

lets see average price around country: €242,000

100% mortgage for above at 4% fixed (!) for 30 years (with 2% inflation for all this time!), gives us this:

:eek:

please note thats 4% fixed for 30 years, which would be incredible

most mortgages have low initial rates before resetting to higher variable/tracker rates

AARRRGH · 06-04-2010 01:24AM

Dannyboy83 wrote: »

What about the lads I went to school with, who didn't save at all - they were handed the money by their parents as wedding gifts or whatever.
Or sons of farmers etc.

What has that got to do with anything?

Sounds like sour grapes to me.

Dannyboy83 wrote: »

What if you don't want an expensive house - just a regular house?

Every house is expensive.

The reason banks want you to have a deposit is because:

a) you are sharing the risk with them
b) if the value of their investment falls, they have an 8% - 10% breathing space.

Dannyboy83 · 06-04-2010 01:25AM

ei.sdraob wrote: »

yes because interest rates will stay this for the next few decades (duration of mortgage)

About interest rates, I can agree.
This is a good point.

The thing is, as long as we are in the Euro, we are not going to see 1980s style interest rates.
AFAIK, the absolute ceiling would be 10%, and any of the Germans I know say this is just plain unrealistic as it would screw the German economy, so 4 or 5% is more realistic, perhaps 8% maximum.

So if you can't afford that 4% interest rate rise - I agree- you are not eligible for a 100% mortgage. (How many hundreds of thousands of current homeowners does that include i wonder?:rolleyes:)

But what if you can afford it?

I mean - God Forbid we will do anything to get the economy moving again lads!!

Dannyboy83 · 06-04-2010 01:33AM

AARRRGH wrote: »

What has that got to do with anything?

Sounds like sour grapes to me.

Sounds like you're not reading my posts to me.

You're suggesting that this 5 years of saving the 8% deposit will make you responsible and eligible.
Clearly that doesn't apply to the many sons of farmers and civil servants who had it handed to them.

Or are you suggesting it does?:rolleyes:

Every house is expensive.

The reason banks want you to have a deposit is because:
a) you are sharing the risk with them
b) if the value of their investment falls, they have an 8% - 10% breathing space.

In that case why not have a 50% deposit rate?
Are you not sharing the risk on a 100% mortgage?
You are still homeless, bankrupt & pursued for every penny in both scenarios.

Again, it makes sense for investment properties..........but not for primary residences.

ei.sdraob · 06-04-2010 01:34AM

Dannyboy83 wrote: »

I mean - God Forbid we will do anything to get the economy moving again lads!!

yes we get economy moving with more of the same crappy loans that got us here

^sarcasm :rolleyes:

Sofiztikated · 06-04-2010 01:34AM

Dannyboy83 wrote: »

How does this differ from renting....................at all?

If you don't pay your mortgage, you're on the street.
If you don't pay your rent, you're on the street.

If you don't pay your mortgage, you're on the street, AND you will owe the balance. So if you try to find somewhere else, you end up renting AND paying a mortgage.

If you don't pay your rent, your out until you find somewhere else.

Renting a house and owning a house is very different.

Trust me, I'm just getting into this now, and finding out theres more to it than I though.

You have:
Mortgage
Life Assurance
Home Insurance
Solicitor Fees
Upkeep of the house
Furnishing said house
Emergency maintenance
Bills
Connection fees

For renting you have:
Rent.
Oh and bills for services like ESB/gas and that. But all the expensive stuff is done.

Renting, you can move at the drop of a hat. (well, given notice and that.)

Myself and my fiance managed to pay rent, pay bills, enjoy ourselves AND save for a deposit, why shouldn't you? (And I'm terrible at saving)

Just because you want something now, doesn't mean you should get it now.

ei.sdraob · 06-04-2010 01:38AM

Sofiztikated wrote: »

Myself and my fiance managed to pay rent, pay bills, enjoy ourselves AND save for a deposit, why shouldn't you? (And I'm terrible at saving)

Just because you want something now, doesn't mean you should get it now.

thats because he thinks he is entitled to a subsidised home, he comes to boards.ie to whinge because the banks wouldnt give out a subprime loan anymore

theres no such thing as free lunch in this world

LeBash · 06-04-2010 01:39AM

Dannyboy83 wrote: »

How does this differ from renting....................at all?

If you don't pay your mortgage, you're on the street.
If you don't pay your rent, you're on the street.

There is no difference.
Any degree of responsibility is in the mind I think!

I'm not sure the bank would have still made a profit, but if that were the case, it would remove yet another obstacle.

But that 99% of their mortgage is likely on a very different scenario.
Do you understand my point?

Mr.X signed up for the 100% mortgage @ 550k (insane) for some shoebox in dumpland, during the height of the pyramid. His salary was a hugely inflated 75k per year. Now he took a 50% pay cut (no sales bonus) and he's shafted.
Will never repay unless he moves country.
Result = nasty business.

Mr.Y signed up for the 100% mortgage @180k (very clever) for a regular 3 bed semi d in Cork, having waited for the collapse, over halfway down the pyramid. Even with a paycut, he still has a healthy €35k per annum, but his partner is unemployed, meaning saving is very slow and somewhat difficult.
As it stands, his mortgage repayments would be approx 1/2 of what he pays for rent (since his wife is not entitled to any social welfare by Irish law).
Having got the 100% mortgage, he will happily and easily repay his mortgage.
Once his wife is back in work, they are seriously sorted and actually pay off their mortgage 10 years early
Result = everyones a winner

Agreed.
That was 2004 tho, Ireland was a 'miracle'.
This is 2010, Ireland is a pariah.

Id like to be able to multi quote but i cant.

If you dont pay your mortage, your on the street and the bank can resell the house. Take into account up until 2007 the banks would have made a huge profit on that.

If you dont pay your rent, your out on the street, but the bank are using the owner of the house as a gaurentor as such. Ok rent tends to be highier than a mortage, but thats cause the person renting the house out is at risk themselves cause clearly if someone was in a great situation, they would have the mortage.

The 99% mortage is on a very different scenario, hence, your being screwed and paying for an unsustainable banking system that was going to collapse, but everyone making it that way was hoping to be out of the banks just before it happened. I bet some made it as well.

Mr X and Mr Y are 2 tottally different people, poor aul Mr X was buying something that resembled bowling lanes in Dublin or in a commuter town (which seemed to have streched down to south Wexford), paid well over the odds for it, because demand was so high.

Mr Y wasnt smarter, just lucky he wasnt working and living in Dublin.

The demand in Dublin was much higher, and everybody decided they wanted to own more than one property. Net result, landowners were getting more money to sell it, builders were getting more money to build it, (and raw materials were going through the roof) developers wanted more, and the consumer paid more.

The end result was alot of people made massive commissions, hit targets etc etc to the point the system collapsed on itself. The banks dont want to be in bits, but the people running them allowed them to over strech.

The problem came when people started looking for thier money after Enron collapsed imo

Dannyboy83 · 06-04-2010 01:42AM

ei.sdraob wrote: »

@ Dannyboy83

you are incredibly naive, i wondered how this country got to where it is and now i know, despite all that happened people still would trot out incredible thread like this

A bit of advice ei.sdraob : Attack the post, not the poster!!

i want to see your figures @Dannyboy83, where did you get 500/month from, what are the mortgage details?

http://www.daft.ie/searchsale.daft?id=390925&search=1

lets see average price around country: €242,000

I already made it clear (how many times?) that I'm not talking about an expensive house.
Just a regular, 3 bed semi d in Cork: http://www.daft.ie/1390925

€474 over 35 years (avg rent in Cork is still around the €850 mark)

100% mortgage for above at 4% fixed (!) for 30 years (with 2% inflation for all this time!), gives us this:
:eek:
please note thats 4% fixed for 30 years, which would be incredible
most mortgages have low initial rates before resetting to higher variable/tracker rates

Yes, but I asked about Apples, and your giving me oranges.

240k is still approaching pyramid prices.
How is a single earner on 35k supposed to repay that?

I'm talking about a regular house, 150k for a person on a 35k salary.
Manageable - even with interest rates rises.
All that is excluding them is the deposit.

Why use this system of mortgages?

Comments