Why use this system of mortgages?

ei.sdraob · 06-04-2010 01:48AM

Dannyboy83 wrote: »

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

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)

where in gods name are you getting €474 over 35 years from?

what bank? where are the mortgage details? what % es ?? what type of mortgage??

how hard can it be to save 15 grand (10% of above) ?? Jesus by time you save that up this house would drop by at least that amount if not more

Dannyboy83 · 06-04-2010 01:49AM

ei.sdraob wrote: »

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

As I already stated, I don't believe I am entitled to anything.

The reason I came onto boards.ie tonight was to try and understand why this system is operated like this.

Unfortunately, I cannot do this because a grown man is acting like a little child, putting words in my mouth, and throwing a strop on my thread for god knows what reason?

As I already said, attack the post - not the poster!
Otherwise, on yer bike please.

Dannyboy83 · 06-04-2010 01:55AM

ei.sdraob wrote: »

how hard can it be to save 15 grand (10% of above) ?? Jesus by time you save that up this house would drop by at least that amount if not more

Well I guess your girlfriend could be unemployed and quite sick for 2 years, bedbound at stages and entitled to no social welfare.

By the time you've paid your rent, bills, health insurance, car insurance and whatever else, well.........15k could take you over 5 years easily.

I'm not looking for special treatment off anyone.
I work and pay my way for everything and I always have.
To be honest, I find it insulting that you suggest that I think I am entitled to anything........if only you had a clue pal!

It would be real good if you'd come off the high horse and not judge me when you don't even know me.
Doesn't look like its gonna happen tho.

/thread

ei.sdraob · 06-04-2010 01:56AM

Dannyboy83 wrote: »

As I already stated, I don't believe I am entitled to anything.

The reason I came onto boards.ie tonight was to try and understand why this system is operated like this.

Unfortunately, I cannot do this because a grown man is acting like a little child, putting words in my mouth, and throwing a strop on my thread for god knows what reason?

As I already said, attack the post - not the poster!
Otherwise, on yer bike please.

It was explained to you already

not giving 100% mortgage is a way for the banks to somewhat reduce the risk to them

in case you were under a rock for last few years, it was exactly the type or risky lending that you want to resume that got us all into so much trouble

after 3 pages you still can not connect the dots

if anything 92% is still to high a ratio, by any standards

View · 06-04-2010 01:56AM

The short answer is because the banks - who will supply the money that the person would like to borrow - like the "money-down" system.

To them - maybe not to the potential borrower - it is a good system. If you have to put 10% down, that's a nice chunk of cash you won't be in a hurry to walk away from. Hence, the bank believes you'll have less incentive to default on the mortgage payments.

And, that leaves the potential borrower with two choices. Either play by the bank's rules or forget about borrowing.

alejandro1977 · 06-04-2010 02:04AM

Dannyboy83 wrote: »

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?

Do you have any understanding of the role that excess credit (mortgages) played in driving up house prices to unrealistic levelss - way above international house prices, way above their economic values. ( Related to expected rental income and long term interest rates).

Do you understand that 1st time buyers with 100% mortgages bidding against each other drove up house prices?

Most landlords who bought in the last few years and fixed their mortgages at 5 or 10 years (typical average interest rates) are not covering their mortgages with the rental income. Anyone who is paying rent in excess of what it would take to pay a mortgage needs to have a chat with his or her landlord. There is huge over supply out there.

niallo27 · 06-04-2010 04:43AM

alejandro1977 wrote: »

Do you have any understanding of the role that excess credit (mortgages) played in driving up house prices to unrealistic levelss - way above international house prices, way above their economic values. ( Related to expected rental income and long term interest rates).

Do you understand that 1st time buyers with 100% mortgages bidding against each other drove up house prices?

Most landlords who bought in the last few years and fixed their mortgages at 5 or 10 years (typical average interest rates) are not covering their mortgages with the rental income. Anyone who is paying rent in excess of what it would take to pay a mortgage needs to have a chat with his or her landlord. There is huge over supply out there.

Yes we all know why it happened, but that was then and this is now, i think dannyboy makes a lot of fair points which he backed up well, i know this is very simplistic view of it, but anyone buying a house which is 4 to 5 times their wages to give them a 100% mortgage isnt that crazy, the bigger problem in the past was people getting 10 and 12 times the salary for a shoebox.

doubleglaze · 06-04-2010 05:56AM

Dannyboy83 wrote: »

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.

You took out a loan to buy a car??!

A word of advice: don't do that again. You're p!ssing money down the drain on interest that you could be saving up instead. Next time, consider buying an older and smaller car for €1000. Cash upfront. That's the sort of thing rich folks do.

doubleglaze · 06-04-2010 06:15AM

Dannyboy83 wrote: »

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.

Someone on a 35K salary has no business taking out a mortgage of 150K. Their salary is too low for that level of mortgage. More realistically, someone on a 35K salary should be looking out for a mortage of no more than about 100k. Houses within that price range are already coming on stream and will become increasingly common with time. Meanwhile, it should be possible to gradually save up 10,000 euro deposit, by avoiding expensive car purchases and living frugally (no unnecessary travel; no debt; living in cheap accommodation, if necessary living in a house-share rather than renting out a full housing unit on one's own; cut out the expensive social life; no eating out; no p!ssing money down the drain on the nieces' and nephews' confirmations and communions; and no wastage of food from the fridge, etc).

Nody · 06-04-2010 06:35AM

Dannyboy83 wrote: »

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.

No, it is not 500. For starters there is also the insurance, replacement of appliances in the house, the work to be done on the property, the property tax etc. that all also have to be paid on top of the mortgage which is taken care of with rent.

The house is as well not likely to be there for the next either 30+ years with out some serious work done on it which will also cost a fair bit. Then add in the interest increase that will at least double interest if not more AND the most likely property tax (in which ever form it is). Add in insurance for defaulting on the loan due to unemployment, risk that either person has an accident etc. and suddenly it is not 500 EUR only any more.

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!

The difference is you're not asking for the bank's money when renting...

Pa ElGrande · 06-04-2010 06:43AM

From the banks perspective the reasons you save the 10% deposit are to alleviate potential moral hazard that you might default on the mortgage, after all if you walk away from a 100% mortgage (bank of Ireland were doing 110% at the height of the madness), what have you lost? nothing. You know what it took to save the deposit (unless the bank of mam and dad step in), therefore you are less likely to want to loose that principal.
Under normal circumstance the deposit is also to cover dips in value in a normal market in the event of your default, so the bank can recover their losses.

100%+ and interest only mortgages came about because of competition from foreign banks (e.g. Halifax) and availability of cheap money. That competition is now pulling out of the Irish market and ALL of the local mortgage lenders are bankrupt, that means they have burned though their capital and because they are a greater risk have no access to cheap funds on the interbank market.

If you decide to remain in this country you will be hit with more tax raises in the coming years to pay for the moronic scheme that is NAMA, while at the same time receiving less government services (more cutbacks). Add to that all the bailouts and quantitative easing that has been happening worldwide since 2008 has increased the money supply, and this now beginning to be felt in the price of petrol and diesel as it has spawned multiple bubbles worldwide in countries as far away as China and Canada. Increasing the price of fuel also drives up the cost of food, which shows up in the consumer price index and acts as a signal to the ECB to start raising interest rates.

This decade is going to be very rough in economic terms (sovereign debt default is likely within 5 years based on current government policy) , don't be too quick to take on unnecessary debt unless you expect your wages to inflate also.

ballooba · 06-04-2010 07:08AM

Dannyboy83 wrote: »

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.

Show me a house I can buy for 500 a month and rent for 900 a month and I will buy it in the morning. That's a profit of over 400 per month. Unless of course you are not comparing like for like and the property they could buy is closer to 300 per month to rent. That would allow them save an extra 600 per month. Win win.

murphaph · 06-04-2010 08:25AM

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.

Taking out a mortgage with one partner already unemployed is rather risky. She may be in a "secure job" but what if she gets sick and loses her income? There should be some redundancy built into the calculations. Also, if they are determined to buy a property then surely they could sacrifice some privacy and move into a shared house in Cork for 2 years, spending perhaps 250 per month rather than 900 (are houses really still renting for 900 in Cork? Houses can be had for that money in Dublin). That's 650 a month saved plus whatever on utilities they save through the economony of scale derived from living with others. Let's say a conservative 700 saved altogether per month. That's 16,800 saved after 24 months. I assume they could make savings elsewhere (staying in instead of going out etc.)to bump that up to 20k saved in 2 years with a bit of effort.

I personally think they have other problems managing their money if they are shelling out 900 pm for a couple in Cork. A one bed apartment would surely even be a LOT cheaper nowadays and would enable them to maintain privacy AND save, albeit more slowly. The 100% mortgage is the easy way out but is dangerous for people who can't manage their finances.

Dannyboy83 · 06-04-2010 09:29AM

Pa ElGrande wrote: »

From the banks perspective the reasons you save the 10% deposit are to alleviate potential moral hazard that you might default on the mortgage, after all if you walk away from a 100% mortgage (bank of Ireland were doing 110% at the height of the madness), what have you lost? nothing. You know what it took to save the deposit (unless the bank of mam and dad step in), therefore you are less likely to want to loose that principal.
Under normal circumstance the deposit is also to cover dips in value in a normal market in the event of your default, so the bank can recover their losses.

100%+ and interest only mortgages came about because of competition from foreign banks (e.g. Halifax) and availability of cheap money. That competition is now pulling out of the Irish market and ALL of the local mortgage lenders are bankrupt, that means they have burned though their capital and because they are a greater risk have no access to cheap funds on the interbank market.

If you decide to remain in this country you will be hit with more tax raises in the coming years to pay for the moronic scheme that is NAMA, while at the same time receiving less government services (more cutbacks). Add to that all the bailouts and quantitative easing that has been happening worldwide since 2008 has increased the money supply, and this now beginning to be felt in the price of petrol and diesel as it has spawned multiple bubbles worldwide in countries as far away as China and Canada. Increasing the price of fuel also drives up the cost of food, which shows up in the consumer price index and acts as a signal to the ECB to start raising interest rates.

This decade is going to be very rough in economic terms (sovereign debt default is likely within 5 years based on current government policy) , don't be too quick to take on unnecessary debt unless you expect your wages to inflate also.

Good comprehensive answer and didn't need to insult me once!
Thank you!

Dannyboy83 · 06-04-2010 09:33AM

ballooba wrote: »

Show me a house I can buy for 500 a month and rent for 900 a month and I will buy it in the morning. That's a profit of over 400 per month. Unless of course you are not comparing like for like and the property they could buy is closer to 300 per month to rent. That would allow them save an extra 600 per month. Win win.

Show me a property you can rent for 300 per month and I will never try to buy a house.
As said, the avg rent in Cork is apprx €850 per month.

Monthly repayments, including insurance and those other factors above are substantially lower on some properties (having worked it out recently with a mortgage advisor, I know this to be the case).
The obstacle is the deposit. That's not going to change for us any time soon so its just another reason to thinking about emigrating I guess, coupled with all the points Pa ElGrande made.

Dannyboy83 · 06-04-2010 09:34AM

doubleglaze wrote: »

You took out a loan to buy a car??!

A word of advice: don't do that again. You're p!ssing money down the drain on interest that you could be saving up instead. Next time, consider buying an older and smaller car for €1000. Cash upfront. That's the sort of thing rich folks do.

Not sure if you are being sarcastic?

old_aussie · 06-04-2010 09:37AM

What makes me laugh is that you(the Irish people) elected a government that appears incapable of monitoring and regulating the financial industry.

And you seem to keep those people elected, don't you learn by your mistakes?

Maybe Ireland should get a blueprint of how the Australian gov monitors and regulates the financial industry.

Dannyboy83 · 06-04-2010 09:42AM

..

kippy · 06-04-2010 09:43AM

The ability to pay back debt is reliant on your job. Jobs getting lost have been the main cause of residential defaulters.
I see very little issue with %100 mortgages so long as the person who gets it is in a decent/stable job and has insured their income as such, the property they are buying is of a reasonable value and they intend to live in that property LONG term.

What has happened in the past few years is property prices have spiraled, people have bought to invest and many have hidden or fiddled their incomes to get mortgages. The then lose their jobs as a knock on effect of larger scale issues and bang, we have a major problem.

ei.sdraob · 06-04-2010 09:51AM

Dannyboy83 wrote: »

Show me a property you can rent for 300 per month and I will never try to buy a house.
As said, the avg rent in Cork is apprx €850 per month.

Monthly repayments, including insurance and those other factors above are substantially lower on some properties (having worked it out recently with a mortgage advisor, I know this to be the case).
The obstacle is the deposit. That's not going to change for us any time soon so its just another reason to thinking about emigrating I guess, coupled with all the points Pa ElGrande made.

please please do put in the figures into a mortgage calculator even at fixed rate

you really haven't looked this thru? please sit down with mortgage calculator

you need to think of the absolute worst case scenario, especially considering prices will continue to fall, also note that this 150K will get you a brand new well insulated 4-5 bed with land here in west, and houses will go down, this one will hit 130 easily

you said you would not be able to save up 15 grand in 5 years

but look at these figures (does not factor in any rate increases over 35 years! the picture gets worse if you start factoring in increases over the life of this)

you would pay 15K in just interest in the first 4 years! barely scratching the principal

2010 €3,356.69 €1,838.83 €148,161.17
2011 €4,410.42 €2,516.94 €145,644.23
2012 €4,333.85 €2,593.51 €143,050.72
2013 €4,254.98 €2,672.38 €140,378.34
2014 €4,173.68 €2,753.68 €137,624.66
2015 €4,089.94 €2,837.42 €134,787.24
2016 €4,003.65 €2,923.71 €131,863.53
2017 €3,914.70 €3,012.66 €128,850.87
2018 €3,823.09 €3,104.27 €125,746.60
2019 €3,728.66 €3,198.70 €122,547.90
2020 €3,631.35 €3,296.01 €119,251.89
2021 €3,531.12 €3,396.24 €115,855.65
2022 €3,427.83 €3,499.53 €112,356.12
2023 €3,321.38 €3,605.98 €108,750.14
2024 €3,211.69 €3,715.67 €105,034.47
2025 €3,098.68 €3,828.68 €101,205.79
2026 €2,982.22 €3,945.14 €97,260.65
2027 €2,862.23 €4,065.13 €93,195.52
2028 €2,738.57 €4,188.79 €89,006.73
2029 €2,611.18 €4,316.18 €84,690.55
2030 €2,479.90 €4,447.46 €80,243.09
2031 €2,344.64 €4,582.72 €75,660.37
2032 €2,205.24 €4,722.12 €70,938.25
2033 €2,061.61 €4,865.75 €66,072.50
2034 €1,913.61 €5,013.75 €61,058.75
2035 €1,761.11 €5,166.25 €55,892.50
2036 €1,603.98 €5,323.38 €50,569.12
2037 €1,442.07 €5,485.29 €45,083.83
2038 €1,275.22 €5,652.14 €39,431.69
2039 €1,103.30 €5,824.06 €33,607.63
2040 €926.16 €6,001.20 €27,606.43
2041 €743.62 €6,183.74 €21,422.69
2042 €555.54 €6,371.82 €15,050.87
2043 €361.74 €6,565.62 €8,485.25
2044 €162.03 €6,765.33 €1,719.92
2045 €8.60 €1,719.92 €0.00

danbohan · 06-04-2010 10:01AM

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.

did you ever ask yourself why 60%+ of Germans rent , and are happy to continue to rent , and as far as i can see they have a much more balanced economy than us , and have a fraction of personal debt that irish people do and have much greater level of savings , its time for irish people to completely revalue their obsession with owning shoeboxes

Mad_Max · 06-04-2010 10:07AM

Can't really believe this thread.

Inside a week I've seen people lashing the regulator out of it for...regulating and now someone wants 100% mortgages back.

The_Honeybadger · 06-04-2010 10:13AM

doubleglaze wrote: »

You took out a loan to buy a car??!

A word of advice: don't do that again. You're p!ssing money down the drain on interest that you could be saving up instead. Next time, consider buying an older and smaller car for €1000. Cash upfront. That's the sort of thing rich folks do.

doubleglaze wrote: »

Someone on a 35K salary has no business taking out a mortgage of 150K. Their salary is too low for that level of mortgage. More realistically, someone on a 35K salary should be looking out for a mortage of no more than about 100k. Houses within that price range are already coming on stream and will become increasingly common with time. Meanwhile, it should be possible to gradually save up 10,000 euro deposit, by avoiding expensive car purchases and living frugally (no unnecessary travel; no debt; living in cheap accommodation, if necessary living in a house-share rather than renting out a full housing unit on one's own; cut out the expensive social life; no eating out; no p!ssing money down the drain on the nieces' and nephews' confirmations and communions; and no wastage of food from the fridge, etc).

Good posts doubleglaze, if more people thought like you we wouldn't be in such a horrible mess. What amazes me is the amount of people I encounter in everyday life who are clueless about the extent of our economic difficulties, and reckon "sure give it a year or two and things will be back to normal". I also have a friend who can't wait to get on the property ladder even now, when they see prices in freefall around them. I also personally know a young couple who took out a 110% mortgage a number of years ago to buy a 3 bed semi, a car, and a holiday :eek: utter utter madness. One has become unemployed and luckily the other has a good job in the PS but they are only just managing. We have become obsessed with owning property and some people still can't see it was a pyramid scheme that will be a noose around our neck for a generation. Attitudes like this must change if we are to move forward from here.

Treehouse72 · 06-04-2010 10:38AM

Dannyboy83 wrote: »

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)

Danny, on page 1 you said you were cynical. Believe me mate, you are so far from cynical it's not true. Your level of credulity is frightening.

> The €474 figure you got in that Daft link is a 2.25% special introductory teaser rate. The average rate over the lifetime of the loan is likely to be twice that, perhaps more.
> The €474 figure is based on - oh ironies of ironies!! - having a 10% deposit! Whoops! Lose the deposit as you are advocating and the €474 figure goes up.
> And you are terming the mortgage over 35 years....so if you get it when you are 30 you'll own your house the day you retire. 35 years to pay off €138,000. Does that sound healthy to you?

So on a basic level your numbers are gobbledegook.

But in many ways that's not the important bit. The important bit is that after the very obvious carnage and destruction wrought by the property bubble, here we are - before that bubble has even fully deflated - talking about how to get more property at a better deal. Have you learned nothing Danny? Can you not at this stage see the amount of trouble 100% mortgages have caused? Are you aware that the only thing keeping mortgage holders in their homes is the mortgage moratorium and taxpayer bailouts? Do you not understand this?

Finally, here's the solution to the problem you are trying to fix: let house prices fall more. Why in the name of sweet jumping electrical Jesus Christ are you looking for exotic ways to borrow more money to buy houses when there is a simpler option: make the houses cheaper?? What in the name of God is wrong with this solution? Why are you so eager to see prices sustained at somewhere close to where they are now? Seems to me you are emotionally and intellectually incapable of even envisaging this for some reason.

I feel depressed after reading this thread.

Dannyboy83 · 06-04-2010 10:55AM

Treehouse72 wrote: »

Finally, here's the solution to the problem you are trying to fix: let house prices fall more. Why in the name of sweet jumping electrical Jesus Christ are you looking for exotic ways to borrow more money to buy houses when there is a simpler option: make the houses cheaper??

I would love to see that happen.
That's not the dilemma.
A cheaper house just means the bank will want a bigger deposit.
A huge chunk of potential customers are still locked out either way. (and I don't mean the sub-prime crew or whatever)

What in the name of God is wrong with this solution? Why are you so eager to see prices sustained at somewhere close to where they are now?

Who said I was eager to see that happen?
I'd like to see them sink as low as possible.
That's not what the thread is about.

Seems to me you are emotionally and intellectually incapable of even envisaging this for some reason.

Seriously, what the fcuk is all this about?

You can't even come and ask a normal question on this forum anymore without getting attacked!

Grow up children!

Dannyboy83 · 06-04-2010 10:58AM

Mad_Max wrote: »

Can't really believe this thread.

Inside a week I've seen people lashing the regulator out of it for...regulating and now someone wants 100% mortgages back.

They say a general never fights the current battle, only the last one.

That would appear to be the case on this forum.

ooooooooooops - I said the "P" word!!!!! oooooooohhhhhhh!

Dannyboy83 · 06-04-2010 11:00AM

danbohan wrote: »

did you ever ask yourself why 60%+ of Germans rent , and are happy to continue to rent , and as far as i can see they have a much more balanced economy than us , and have a fraction of personal debt that irish people do and have much greater level of savings , its time for irish people to completely revalue their obsession with owning shoeboxes

Good post.

On the other hand, long term renting is an established method in Germany, and there is a bit of legislation to back you up (my brother in law is German).

This is not the case in Ireland. There is sod all protection and consequently, nobody does it, consequently there is sod all protection & new legislation, consequently nobody does it etc. etc.

Sarn · 06-04-2010 11:29AM

I can see the frustration. I imagine there are a lot of people watching the price of houses falling, thinking that they are missing out on perceived bargains. Whether this be due to the absence of a deposit or the banks not lending enough. However, this is serving to protect everybody, homeowner, lender and tax payer. As mentioned above it acts as a buffer in the event of a default by the borrower.

With prices continuing to fall, a 100% mortgage immediately leads to negative equity and dramatically increases the risk to the lender. They can offest this by charging a penal rate of interest or request a deposit. We can see what happens in the event that a person in negative equity defaults (the current moratorium aside). They lose their home and the bank chases them for the remaining debt, and perhaps legal fees. An 8 - 10% deposit can offset this risk. The requirement for a deposit worked out quite well before the advent of 100% mortgages.

In addition, the requirement for a deposit makes people pause and think about this major purchase. Some people need this. It slows the market down and stops some people grabbing a 100% mortgage on a whim without considering the financial implications.

K-9 · 06-04-2010 12:12PM

Dannyboy83 wrote: »

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.

At times of low interest rates which will rise. I'd wonder how long the term is for those repayments too.

Edit: Answered in the thread, 35 years. Thanks. Fecking working for the bank that is. A 20/25 year term is plenty.

fontanalis · 06-04-2010 12:19PM

Three cheers for the knowledge economy.

Why use this system of mortgages?

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