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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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The_Conductor

Deleted User wrote: »

That I don't know. Generally I don't think of them as major 'competitors' in the hunt for family homes but we missed out on a 3-bed semi recently near a university and the agent later told us that it had been bought by an investor. "Makes sense for people with kids," says she, "Just get 30k, buy a house, put your son/daughter in one room and rent the rest. Then when they graduate you sell it or keep renting it out and the rent pays the mortgage. No lose situation".

But now these guys need 120k to buy a 300k house which is a different category of amateur landlord.

Also the 'just sell it when the kids are finished with it' is also less attractive. In the past you'd be exempt from Capital Gains Tax if you held it for seven years. Now you pay 33% on any profit you might make.

These disincentives - small and big - add up.

Now they need 180k upfront to buy a 300k property- its a 60% deposit....

[Deleted User]

The_Conductor wrote: »

Now they need 180k upfront to buy a 300k property- its a 60% deposit....

Is it not a 60% LTV?

seamus

Yeah, 60% LTV for non-residents, 75% for residents.

40%/25% is still pretty hefty though.

Jeremyr

I've got 110k saved after working my boll0x off since i was 15 only on 26-28k due to starting a new job after taking redundancy so can't really borrow much so hopefully these rules help out the hard working FTB

How do people justify handing over crazy money for 3 bed semi's in South Dublin i know it's a nice area but over 450k for a 3 bed is just insane

Hoping to get somewhere soon but I'll keep saving in the meantime and keep my expectations low , not paying over 220k for property as don't want a rope around my neck , maybe I'm just old school even though im still in my Twenties

Fair play to anyone who comes up with the dough and can afford property in South Dublin best of luck to you

If you got help from Mammy and Daddy it doesn't count

handlemaster

Any ponderings from the educated economists where we will property going after ECB QE starts in march

http://www.irishexaminer.com/breakingnews/business/ecbs-quantitative-easing-will-drive-investment-in-irish-property-market-659185.html

bluesteel

Jeremyr wrote: »

I've got 110k saved after working my boll0x off since i was 15 only on 26-28k due to starting a new job after taking redundancy so can't really borrow much so hopefully these rules help out the hard working FTB

How do people justify handing over crazy money for 3 bed semi's in South Dublin i know it's a nice area but over 450k for a 3 bed is just insane

Hoping to get somewhere soon but I'll keep saving in the meantime and keep my expectations low , not paying over 220k for property as don't want a rope around my neck , maybe I'm just old school even though im still in my Twenties

well done man; that's the right attitude

you should write a letter to the newspaper (Times) telling your story - it's full of hard luck stories decrying the restrictions

Jeremyr

handlemaster wrote: »

Any ponderings from the educated economists where we will property going after ECB QE starts in march

Very interested in this subject myself

It would have to have some kind of knock on event in the scheme of things, this bubble can't continue

I understand there is quite a high demand in South Dublin but in other areas some people are asking for crazy money it's all propaganda

A mate of mine was bidding on a house in Dublin 15 for around 4 months, he eventually got it last month for 40k UNDER the asking price, i think you will find that alot of the property outside SD is going for less than the asking

Saw a house 3 bed semi go up for sale in Blanch recently for 350k lol , had to laugh when one in the same estate sold for 195k in November 2014

handlemaster

Jeremyr wrote: »

I've got 110k saved after working my boll0x off since i was 15 only on 26-28k due to starting a new job after taking redundancy so can't really borrow much so hopefully these rules help out the hard working FTB

How do people justify handing over crazy money for 3 bed semi's in South Dublin i know it's a nice area but over 450k for a 3 bed is just insane

Hoping to get somewhere soon but I'll keep saving in the meantime and keep my expectations low , not paying over 220k for property as don't want a rope around my neck , maybe I'm just old school even though im still in my Twenties

Fair play to anyone who comes up with the dough and can afford property in South Dublin best of luck to you

If you got help from Mammy and Daddy it doesn't count

Its the prices of that particular area have always been high. But alot of it is very desirable to live in. Alot to be said for that.

Jeremyr

handlemaster wrote: »

Its the prices of that particular area have always been high. But alot of it is very desirable to live in. Alot to be said for that.

I agree , maybe it's just because i'm not from the area is why i couldn't justify paying that kind of money.

Looking to purchase in West Dublin , either Lucan, Clonsilla or Castleknock they all have host of amenities close by and are all near my job and the airport

South Dublin would obviously blow them out of the water in terms of safety, location etc

But in my situation if i can get a house whilst only borrowing 80-90k id rather do that than take on too much just incase the sh!t hits the fan again like only a few years ago ( people have a very short memory )

If i win the lotto , South Dublin might be on the cards or Malibu

bluesteel

Jeremyr wrote: »

If i win the lotto , South Dublin might be on the cards or Malibu

well, they cost about the same... :pac:

OMD

Jeremyr wrote: »

I agree , maybe it's just because i'm not from the area is why i couldn't justify paying that kind of money.

Looking to purchase in West Dublin , either Lucan, Clonsilla or Castleknock they all have host of amenities close by and are all near my job and the airport

South Dublin would obviously blow them out of the water in terms of safety, location etc

But in my situation if i can get a house whilst only borrowing 80-90k id rather do that than take on too much just incase the sh!t hits the fan again like only a few years ago ( people have a very short memory )

If i win the lotto , South Dublin might be on the cards or Malibu

If you are on 26-28K a year you should not be looking at any mortgage unless there are 2 of you buying together.

Greyian

The_Conductor wrote: »

Hitherto the smallest possible deposits have been used by investors- and the loans instead secured on other property- as the largest tax deductible expense available to investors has been 75% of mortgage interest. By insisting on a 60% deposit- and only 40% loan for properties bought by landlords- you are instantly freezing the market- not only are you asking the landlord to fund 60% of the purchase upfront- but you're also cutting the legs off their largest tax deductible expense.

Outcome- landlords and investors are *not* going to buy any further properties for the purpose of letting them out..........

I'd decided to take a look at the effects this could have on the investor market. I wouldn't expect this post to be as accurate as my previous one regarding average/median prices, as my knowledge of the rental market (from the landlord's side) isn't very well developed, but I'll give it a go anyway.

As my sample properties, I've chosen this apartment in Sandyford for sale at €300,000, along with this similar apartment available to rent in Sandyford . Based on the images, I'd say the rental property might be slightly nicer than the one for sale, but we'll assume they're equal, so a landlord buying the €300,000 apartment will be able to get rent of €1800 on it.

If the landlord has the minimum 40% deposit, they will require a €180,000 mortgage to purchase it. Based on AIB's current variable rate buy-to-let mortgage (over a maximum term of 25 years), the monthly mortgage payments will be €1089.29. In the first month, this will consist of an interest payment of €802.50, with €286.79 being paid off the principle. Each month, the interest portion of the repayment will fall slightly, meaning lower interest deductible expense, but for ease of calculation, we'll use the first month for running the figures.

So the apartment has a monthly rental yield of €1,800 (and we'll assume that there is no downtime when it isn't being rented), while the mortgage repayment is €1089.29. That doesn't look too bad. Let's allow another €200/month for expenses (e.g. furniture, property tax, insurance etc), though, in reality, these charges could be higher. That would, at this point, give us incoming payments of €1,800/month, with €1289.29 outgoing. Still looks like a very profitable investment choice.

But now we come to the tax. I'm going to be honest, this is the area I have the least knowledge of. I don't know if property tax, for example, is a deductible expense. But, to be consistent, I'm going to assume that all of the €200 example given above is deductible, to give the landlord the lowest income tax possible.
So our allowable expenses would be €200 + €601.88 (75% of the mortgage interest), totalling €801.88. This would give us a taxable figure of €998.12 (€1,800-€801.88). Given the complaints many in the media (and some in this thread) have had about the restriction of credit under the new rules, we can assume the only people who could possibly save up a 40% deposit are all in the higher rate tax band, meaning 51-52% tax on their rental income. We'll go with 51%, which gives us tax liabilities of €509.04 (€998.12*51%).

So now the landlord has rental income of €1,800/month, with outgoings of €1798.33, giving a bumper monthly profit of €1.67. We have to remember, however, that the landlord is building up equity in the property, which is €286.79 in the first month. At the end of the first year, their total equity in the property is €123,527.20 (consisting of €120,000 deposit and €3,527.20 from mortgage principle repayments). The landlord will also have earned approximately €20 monthly on the incoming/outgoing payments, so that will give them a profit in the first year of €3,547.20, which equates to a return of 2.956% on their original investment in the first year.

A return of under 3%, with the risks associated with the property market (along with the work involved in being a landlord), doesn't really seem like the kind of returns that will lead to a frenzy of property investment by prospective landlords which would drive owner occupiers out of the market.

Edit: And, just for fun, if you were to buy the property outright for €300,000 cash, you would have monthly profits of €786 (€1800 income, less €200 expenses, less €814 tax (tax made up of €1600*51%)), or annual profits of €9,432, which equates to 3.144%, which (again) isn't a massive return on investment with the risks and effort required.

Jeremyr

OMD wrote: »

If you are on 26-28K a year you should not be looking at any mortgage unless there are 2 of you buying together.

Says who??

I've saved the 110k and if i only need 80k my repayments work out @ around 339e per month

handlemaster

Jeremyr wrote: »

I agree , maybe it's just because i'm not from the area is why i couldn't justify paying that kind of money.

Looking to purchase in West Dublin , either Lucan, Clonsilla or Castleknock they all have host of amenities close by and are all near my job and the airport

South Dublin would obviously blow them out of the water in terms of safety, location etc

But in my situation if i can get a house whilst only borrowing 80-90k id rather do that than take on too much just incase the sh!t hits the fan again like only a few years ago ( people have a very short memory )

Having lived in both south Dublin and also dublin 15 the services in and around blach are the best you will get anywhere. The centre ,cheap gym, open space etc

dr.fuzzenstein

Jeremyr wrote: »

Says who??

I've saved the 110k and if i only need 80k my repayments work out @ around 339e per month

You saved 110k? I am actually impressed. On what salary?

Sala

Jeremyr wrote: »

Says who??

I've saved the 110k and if i only need 80k my repayments work out @ around 339e per month

Agree. It's not about salary- it's salary relative to loan, and loan relative to property price. As it is you'll probably have in excess of 50% equity from day 1.

Jeremyr

dr.fuzzenstein wrote: »

You saved 110k? I am actually impressed. On what salary?

started low on about 18k at 15 years old, then worked up to 48k for a few years followed by a redundancy and now on 26-28k for past two years

gaius c

handlemaster wrote: »

Any ponderings from the educated economists where we will property going after ECB QE starts in march

http://www.irishexaminer.com/breakingnews/business/ecbs-quantitative-easing-will-drive-investment-in-irish-property-market-659185.html

There's a large number of commentators in this country who could somehow spin a nuclear holocaust as being "good for property prices".

handlemaster

gaius c wrote: »

There's a large number of commentators in this country who could somehow spin a nuclear holocaust as being "good for property prices".

So true and their are others that believe you should be able to buy a home with little effort and very little savings

Jeremyr

handlemaster wrote: »

So true and their are others that believe you should be able to buy a home with little effort and very little savings

So true

I also hate the people who take mortgages out from the Bank of Mammy and Daddy

flintash

ionapaul wrote: »

QE will mean more money being skimmed off by the middle men (the banks) and a load of money going into equities, if the US experience is anything to go by. If a roaring equities market becomes even more attractive, I wonder will that dampen down any enthusiasm for property investment in Europe? Why chase a 5% yield when equities continue to soar?

sound legitimate. i wonder is tis how it worked in usa?

Jeremyr

flintash wrote: »

sound legitimate. i wonder is tis how it worked in usa?

You just have to take a quick look at the portfolios of the average investor in the US , they have a plethora of Stocks, Bonds, Hedge funds and properties amongst other interests.

Whereas if you take a glance at Ireland ( in the EU) the average " investor " has a shoebox you couldn't swing a cat in resting in sunny old Dublin

flintash

The_Conductor wrote: »

Hitherto the smallest possible deposits have been used by investors- and the loans instead secured on other property- as the largest tax deductible expense available to investors has been 75% of mortgage interest. By insisting on a 60% deposit- and only 40% loan for properties bought by landlords- you are instantly freezing the market- not only are you asking the landlord to fund 60% of the purchase upfront- but you're also cutting the legs off their largest tax deductible expense.

Outcome- landlords and investors are *not* going to buy any further properties for the purpose of letting them out..........

thats grand so. i believe many poeple prefer to buy than rent, and renting only because cant afford to buy because the stock is owned by "investors".when there is no investor, there is no demand... fill in the rest.

Jeremyr

flintash wrote: »

thats grand so. i believe many poeple prefer to buy than rent, and renting only because cant afford to buy because the stock is owned by "investors".when there is no investor, there is no demand... fill in the rest.

Somewhat true however alot of people don't want to tie themselves down to a 25-35 year loan

If rent controls /longer leases were introduced i think you may find more people have faith in the rental market and pick rent over mortgage

flintash

personally i dont see anything wrong with long mortgages. even lo ger what they are now. see all it matters is montly repayment. so lets say you have 40 years mortgage and payment say of 400. cant check calculators online but from my head it would be it over 100k. you could afford gaff down the country. you would put rainy day money and in the case of job loss you would not default on your payment.

dr.fuzzenstein

Jeremyr wrote: »

Somewhat true however alot of people don't want to tie themselves down to a 25-35 year loan

If rent controls /longer leases were introduced i think you may find more people have faith in the rental market and pick rent over mortgage

In Ireland you could write a letter to your Tennant that reads "dear Tennant, rents going up by 50% from next month, cough up or get lost, sincerely, your landlord" and it would be perfectly legal and best practice.
In a country with a properly regulated rental market, that can't happen. Ireland hasn't moved on since the famine as far as tennants rights are concerned. And the quality of most of the housing stock wouldnt be as good as, say, 1950's Eastern Europe communist architecture.

dr.fuzzenstein

flintash wrote: »

personally i dont see anything wrong with long mortgages. even lo ger what they are now. see all it matters is montly repayment. so lets say you have 40 years mortgage and payment say of 400. cant check calculators online but from my head it would be it over 100k. you could afford gaff down the country. you would put rainy day money and in the case of job loss you would not default on your payment.

Don't forget that interest accumulates on the outstanding amount. The longer your mortgage runs, the more you pay. The aim is to take out as small a loan as possible and pay it off as quickly as possible. No point throwing more money down the banks gullet as absolutely necessary. Still saying we shouldn't force people to come up with 20% or at least not first time buyers.
The right way is to trade up till you can trade down and end up without a mortgage in less than 20 years.
If my personal plan comes together, I could be mortgage free, or almost, from next year or possibly the year after. My first mortgage was in 2000. My current house is worth a good bit more than the outstanding 200k, but in the end its only worth what I can get for it.
Bit of luck, good bit of neck and a lot of work, I might just pull this off...

kippy

Jeremyr wrote: »

I've got 110k saved after working my boll0x off since i was 15 only on 26-28k due to starting a new job after taking redundancy so can't really borrow much so hopefully these rules help out the hard working FTB

How do people justify handing over crazy money for 3 bed semi's in South Dublin i know it's a nice area but over 450k for a 3 bed is just insane

Hoping to get somewhere soon but I'll keep saving in the meantime and keep my expectations low , not paying over 220k for property as don't want a rope around my neck , maybe I'm just old school even though im still in my Twenties

Fair play to anyone who comes up with the dough and can afford property in South Dublin best of luck to you

If you got help from Mammy and Daddy it doesn't count

Well done. Admirable.
Location, Location , Location as they say.

crazy cat lady

Sorry to hijack but I have a couple of queries...

If they make an announcement next week and bring in new rules, will they become effective immediately?

And we had our mortgage approved but it ran out so we have just resubmitted everything to get an extension. Would this be affected by the new rules?

Thanks

Jeremyr

crazy cat lady wrote: »

Sorry to hijack but I have a couple of queries...

If they make an announcement next week and bring in new rules, will they become effective immediately?

And we had our mortgage approved but it ran out so we have just resubmitted everything to get an extension. Would this be affected by the new rules?

Thanks

If you have to apply again then yes it will be affected, but a quick resubmission should be ok

Tbh i'm not 100% sure, better off going to the bank and speak to them about it