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Central Bank to limit amount banks lend for home purchase

handlemaster

http://www.irishtimes.com/business/sectors/financial-services/central-bank-to-impose-limits-on-home-loans-1.1948176

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mickman

Stavro Mueller wrote: »

Well, it's not affecting me personally but someone close to me who got mortgage approval before Christmas. They've just had a bid accepted on a house but I'm wondering will it all be for nowt.

If they got a letter of offer then it's fine . The new rules can't affect a mortgage that's ready to drawdown

dearg lady

mickman wrote: »

If they got a letter of offer then it's fine . The new rules can't affect a mortgage that's ready to drawdown

How can you be sure? I would be concerned myself in that position

[Deleted User]

dearg lady wrote: »

How can you be sure? I would be concerned myself in that position

It's in the central bank's proposal - anyone with approval not affected.

dearg lady

Deleted User wrote: »

It's in the central bank's proposal - anyone with approval not affected.

woops, missed that! so 'Sanction in Principal' is approval in principal? I'm quite surprised at that actually.

Sala

dearg lady wrote: »

woops, missed that! so 'Sanction in Principal' is approval in principal? I'm quite surprised at that actually.

Approval in principal is different to loan offer. I would be looking for the official offer ASAP if I were them

dearg lady

Sala wrote: »

Approval in principal is different to loan offer. I would be looking for the official offer ASAP if I were them

I'm asking if approval in principle is the same as sanction in principle, The proposal specifies 'If a regulated financial service provider has entered into a Mortgage Offer
(Sanction in Principle) commitment before the date on which the LTV/LTI
limits come into effect, the limits do not apply to that commitment.'
By loan offer do you mean the actual drawdown of the mortgage? too many phrases...!

dr.fuzzenstein

Jeremyr wrote: »

Sorry i'm late into this thread and haven't been up to pace but from what i gather from various sources is that the 20% mortgage lending rule is supposed to come in effect for the 1st of February ?? Any truth in this people have any of you heard the same rumours??

Looks like it will. Want a house? Well, cough up €40 to €60 grand you bastard and you better be earning at least €150 grand a year. And i mean at the very least.
That means only moneybags an afford houses.
All rental property will be bought by foreign speculators and you better get used to rent tripling. Because Irish tenant protection is a joke.
Except in the countryside, nobody earns €150k there so small towns will die as no new properties will be built because no one can afford them.
This will destroy the Irish property market and drive rents sky high.
Because you cannot put property beyond the reach of 80% of the market and expect everything to be well. Anyone who can't see that is an utter moron. Nobody wants to see 110% mortgages again, but this is curing the patient by killing him.

Sala

dearg lady wrote: »

I'm asking if approval in principle is the same as sanction in principle, The proposal specifies 'If a regulated financial service provider has entered into a Mortgage Offer
(Sanction in Principle) commitment before the date on which the LTV/LTI
limits come into effect, the limits do not apply to that commitment.'
By loan offer do you mean the actual drawdown of the mortgage? too many phrases...!

Yes sanction in principal is same as approval in principal. Reading it it appears AIP will suffice. However the banks were told to be aware of rules and not act in a manner that circumvented them. Issuing loads of AIP does just that IMO. I would not be 100% confident they will all stand.

Usually when an offer has been accepted on a house you go back to bank and they issue a formal loan offer. At that stage could could still refuse the amount they approved in principal. If they have an offer accepted they should get onto bank ASAP to ensure they can get the mortgage now (if that's what they want to do)

[Deleted User]

dr.fuzzenstein wrote: »

Looks like it will. Want a house? Well, cough up €40 to €60 grand you bastard and you better be earning at least €150 grand a year. And i mean at the very least.
That means only moneybags an afford houses.
All rental property will be bought by foreign speculators and you better get used to rent tripling. Because Irish tenant protection is a joke.
Except in the countryside, nobody earns €150k there so small towns will die as no new properties will be built because no one can afford them.
This will destroy the Irish property market and drive rents sky high.
Because you cannot put property beyond the reach of 80% of the market and expect everything to be well. Anyone who can't see that is an utter moron. Nobody wants to see 110% mortgages again, but this is curing the patient by killing him.

Are you making all these figures up just to make a point? If not, where are you getting the 80% number?

dearg lady

Sala wrote: »

Yes sanction in principal is same as approval in principal. Reading it it appears AIP will suffice. However the banks were told to be aware of rules and not act in a manner that circumvented them. Issuing loads of AIP does just that IMO. I would not be 100% confident they will all stand.

Usually when an offer has been accepted on a house you go back to bank and they issue a formal loan offer. At that stage could could still refuse the amount they approved in principal. If they have an offer accepted they should get onto bank ASAP to ensure they can get the mortgage now (if that's what they want to do)

Yes, I would tend to agree. I saw a bank ad offering AIP lasting 9 months instead of 6, now that screams circumventing to me!

Captain Chaos

Deleted User wrote: »

Are you making all these figures up just to make a point? If not, where are you getting the 80% number?

Max value of house can only be 3 times your salary so going by current prices in Dublin if you want to buy a house with the new rules you will need to earn 150k pa. With a 60k deposit.

[Deleted User]

Captain Chaos wrote: »

Max value of house can only be 3 times your salary so going by current prices in Dublin if you want to buy a house with the new rules you will need to earn 150k pa. With a 60k deposit.

And the 80%? I thought it would be more like 10%. Honohan said if it had been in last year it would have hit less than 3,000 mortgage applicants. Under 30k houses sold in the year so roughly one in ten.

If you have 60k you could borrow 300k. 3.5 x LTI implies income just under 86k.

[Deleted User]

[Deleted User] wrote: »

And the 80%? I thought it would be more like 10%. Honohan said if it had been in last year it would have hit less than 3,000 mortgage applicants. Under 30k houses sold in the year so roughly one in ten.

If you have 60k you could borrow 300k. 3.5 x LTI implies income just under 86k.

I'm wrong! ðŸ˜Š

300k house. You have 60k. You need to borrow 240k so must have salary of 68,500. Can include two salaries on joint application

flintash

[Deleted User] wrote: »

I'm wrong! ðŸ˜Š

300k house. You have 60k. You need to borrow 240k so must have salary of 68,500. Can include two salaries on joint application

i see people usually forget one more thing. it quite common, isnit? KIDS!!!
your 240k out the window if you " lucky " to have child , never mind if you have more. i wish my joint income was multiplied 3.5. ive two kids.

Greyian

flintash wrote: »

i see people usually forget one more thing. it quite common, isnit? KIDS!!!
your 240k out the window if you " lucky " to have child , never mind if you have more. i wish my joint income was multiplied 3.5. ive two kids.

That would have nothing to do with these new rules though, if banks are already limiting you to less than 3.5 times income because of your children.

Deco99

So people who cant afford to borrow are coming on here to complain they are not allowed borrow? Or at least if not themselves that others who dont earn enough should be encouraged and allowed get into massive unaffordable debt? The media spin has well and truly wotked on this one.

hurlsey

Can somebody confirm for me whether the limit is 3/3.5 your annual gross or net salary?

Deco99

hurlsey wrote: »

Can somebody confirm for me whether the limit is 3/3.5 your annual gross or net salary?

No they cant confirm because the rules are not official yet unless I missed something.

hurlsey

Deco99 wrote: »

No they cant confirm because the rules are not official yet unless I missed something.[

Thanks

Sala

hurlsey wrote: »

Can somebody confirm for me whether the limit is 3/3.5 your annual gross or net salary?

Original proposal was max 3.5.

ezra_pound

Captain Chaos wrote: »

Max value of house can only be 3 times your salary so going by current prices in Dublin if you want to buy a house with the new rules you will need to earn 150k pa. With a 60k deposit.

Is the cheapest house in Dublin 525k now?

Assuming 3.5 times as in the proposals.

[Deleted User]

Might be different rules for FTBs vs second-time buyers, according to Irish Times. There are already different rules in the proposal for investors.

Also talk of it being phased in over (perhaps) three years.

Announcement not expected until end of next week. Decision to be made by Central Bank Commission which meets Tuesday.

zl1whqvjs75cdy

I seem to remember shortly after the initial crash that all and sundry were having a pop at the central bank and at the regulators "Rabble,rabble why did they let us get into too much debt, rabble rabble." Now the regulators are actually trying to do their job and all I hear is "Rabble,rabble we want more debt, rabble,rabble". They literally cannot win no matter what they do.

If the 20% proposal is implemented it'll be bad for people who were looking to buy this year as the market will take some time to adjust to the new rules. But as house prices (mostly) follow the credit levels available to the general public I'd expect prices for FTB properties to fall towards the end of the year.

I also think however that the central bank's strategy needs to be augmented by an increase in supply, particularly in Dublin. Enda and his cabinet colleagues would do well to stop sticking their beak into central bank affairs where they have no authority and actually do something about the chronic housing shortage in the capital. As has been previously suggested in this thread they could heavily tax vacant sites to incentivize building for example. I say all this as a renter who won't be looking at buying for at least another three years.

Sala

Captain Chaos wrote: »

Max value of house can only be 3 times your salary so going by current prices in Dublin if you want to buy a house with the new rules you will need to earn 150k pa. With a 60k deposit.

That doesn't make any sense. Proposals were 3.5 times max salary for mortgage plus a 20% deposit. If you earned 150k max you could borrow is 525k. That would be 80% price of house so your max range would be up to 656 provided you had the savings.

With a 60k deposit (20%) you could buy a property worth 300k, provided you earned enough to get a mortgage for the remaining 240k (68.5k per annum)

mickman

Sala wrote: »

That doesn't make any sense. Proposals were 3.5 times max salary for mortgage plus a 20% deposit. If you earned 150k max you could borrow is 525k. That would be 80% price of house so your max range would be up to 656 provided you had the savings.

With a 60k deposit (20%) you could buy a property worth 300k, provided you earned enough to get a mortgage for the remaining 240k (68.5k per annum)

Its 3.5 x the joint salaries of the applicants so if you earn 50k and your partner earns 50k then the max is 350k .

Sala

mickman wrote: »

Its 3.5 x the joint salaries of the applicants so if you earn 50k and your partner earns 50k then the max is 350k .

I know I was relying to other post and the figures contained in it?

The 350k is max borrowing - it can only be 80% of house price so if you both earn 50k you need the 20% which would be 87.5k bringing max house price up to 437500

mickman

Sala wrote: »

I know I was relying to other post and the figures contained in it?

The 350k is max borrowing - it can only be 80% of house price so if you both earn 50k you need the 20% which would be 87.5k bringing max house price up to 437500

yes true. its the 3.5 that may affect me as i want to purchase a bigger home and rent my first. deposit is ok but the 3.5 limit might be an issue

dr.fuzzenstein

The property bubble was not caused by 90% mortgages.
It was caused by speculators, banks lending way, way over what they should have lent based on income and 110% mortgages.
I myself was lent way more over what I should have been lent, the bank took future earnings increases into account and non-existent rent from letting out rooms in a house I didn't even own yet. Then I took out a loan for the deposit. ("Is this for a holiday and car and NOT a deposit" they asked and I said "eeerrrm, yeah, why not?" At the same time the limit on my credit card was increased without my asking. It was duly maxed out).
That sort of thing is not great. I lived to tell the tale, I still have my house, most debt is paid and I'm not in negative equity. So it's not all doom and gloom.
As for all the people saying "Ah yes, you just need to go down into your vault where you keep heaps of gold and diamonds, pirate treasure chests and safes full of bond and stock papers and just scoop up €60k worth", do you live in the real world? How many of you have €60k in their arse pocket?
The 20% deposit is what will kill the housing market.
Anyone who thinks that this sort of money is no problem, how's the weather in cloud cuckoo land?
I don't mind the lending restrictions so much, but a deposit of 10% makes more sense. A lot of people here are now going "rabble, rabble, tiger politics, rabble, 120% mortgages, rabble, rabble, end of the western world", get a grip.
In fact the 80% deposit will open up the market for speculators, as most Irish won't have the ready cash to buy houses, so what will be built are more and more housing complexes with tiny flats crammed in with rents off the Richter scale.
Closing down the housing market for the average Joe Soap and opening up the rental market to international investment consortiums WILL result in rents shooting sky high. Forget you pretty arguments, but denying this is fiddling while the match is set to Rome.

johnp001

dr.fuzzenstein wrote: »

The property bubble was not caused by 90% mortgages.
It was caused by speculators, banks lending way, way over what they should have lent based on income and 110% mortgages.
I myself was lent way more over what I should have been lent, the bank took future earnings increases into account and non-existent rent from letting out rooms in a house I didn't even own yet. Then I took out a loan for the deposit. ("Is this for a holiday and car and NOT a deposit" they asked and I said "eeerrrm, yeah, why not?" At the same time the limit on my credit card was increased without my asking. It was duly maxed out).
That sort of thing is not great. I lived to tell the tale, I still have my house, most debt is paid and I'm not in negative equity. So it's not all doom and gloom.
As for all the people saying "Ah yes, you just need to go down into your vault where you keep heaps of gold and diamonds, pirate treasure chests and safes full of bond and stock papers and just scoop up €60k worth", do you live in the real world? How many of you have €60k in their arse pocket?
The 20% deposit is what will kill the housing market.
Anyone who thinks that this sort of money is no problem, how's the weather in cloud cuckoo land?
I don't mind the lending restrictions so much, but a deposit of 10% makes more sense. A lot of people here are now going "rabble, rabble, tiger politics, rabble, 120% mortgages, rabble, rabble, end of the western world", get a grip.

In the section on Central Bank rules on this broadcast
http://www.rte.ie/radio1/today-with-sean-o-rourke/
Ronan Lyons had some figures on Irish house price inflation - the figures were 350% of which 170% was directly attributable to loose credit.

dr.fuzzenstein wrote: »

In fact the 80% deposit will open up the market for speculators, as most Irish won't have the ready cash to buy houses, so what will be built are more and more housing complexes with tiny flats crammed in with rents off the Richter scale.
Closing down the housing market for the average Joe Soap and opening up the rental market to international investment consortiums WILL result in rents shooting sky high. Forget you pretty arguments, but denying this is fiddling while the match is set to Rome.

The market is already open to speculators. The government removed the tax incentive for investors in the last budget.
The CB rules are just to protect the banks, social policy and market manipulation is the role of government to legislate.
The main factor in rent price inflation is NAMA sitting on vacant housing stock. If it was sold (even to international investment consortiums) the rental market would improve.

seamus

It's not often I would share opinions with Jack O'Connor, but I tend to be in agreement with his assertion that this 20% rule creates a situation where prices will have to come down to a place where people can afford them with a 20% deposit (not a bad thing) - but there's a supply constraint issue which complicates the matter. And if prices come down, new builds become less profitable, and your supply issue grows.

Clearly we can't go back to the bad old days where builders were given all sorts of concessions to throw up anything, anywhere, while the banks had the ability to lend whatever they wanted. But you can't leave both building and lending badly choked.
Granted, the ICB only has the power to control lending rules and not building regulations, so it may be that Honohan is hoping to force the Government to act on everything else that's required by just pushing ahead with his own reforms. This may have been in discussion with the Government (and ignored) for the last 3 years and he's decided to force the issue.

Unfortunately prime time decided to cut off the discussion just when it got interesting and talk of a phased approach was starting. This seems likely the way that they will go. A 20% rule which kicked in within weeks would instantly depress the property market and push a lot of mortgage holders back into negative equity. This will cause supply to become further constrained and ultimately will impact on the banks' balance sheets. Honohan's not stupid, he knows this.

Long term, the 20% rule isn't a bad thing. If a couple has their eye on a €300k house now with a €30k deposit in their back pocket, then the price of that house depressing to €250k would mean that they need €50k (not €60k), and a mortgage that's 25% smaller.