Income multiples

mariaalice wrote: »

https://www.irishtimes.com/opinion/herd-mentality-condemns-generation-to-rental-housing-1.3956307?fbclid=IwAR1uBVeUUk3mQFBFYRdMGqZwi2Hy1c_prT5ijIHG7aFtWz62B5tj75H9fFQ

Is there some sort of collective madness that overtakes people as regards property?

Its not collective madness. Its landlords renting property at the market rate. Unfortunately the market rate has vastly outpaced wage increases.

The only thing which will fix it is on mass high rise apartment building. The only problem is that those who have the financial ability to do this dont want to because it will affect profits.

The government needs to step in and build a huge amount of property ASAP, but they wont do this either.

So its and endless cycle. There is about 500k more people living in Ireland now as there was when the last property bubble collapsed. There has not been that much housing built in the country in the same time period. Hence the massive shortage.

As for buying property, people are crazy about it because it hugely more affordable to buy a property and pay a mortgage than it is to rent in most areas of the country.

People need to live somewhere.

Does anyone know where the 3.5 limit came from, how it was decided upon.
To me it seems a reasonable multiple but I've no evidence to back it up.

From article
The limit of 3.5 times one’s annual income is too low. Consider the fact that a household earning €80,000, which is not a small income and is above the average industrial wage for a two-income family, is allowed borrow only €280,000 for a new house at a time when the average price of a home in Dublin stands at over €380,000.

Are the 4.5 and 5 cherry picked higher multiples because the writer has an interest in higher multiples which will lead to house price rises.
I tried a quick google but couldn't easily find others, some seem to be based on a loan repayment to net income of ~30%.

Personally I think we should stick with the 3.5, maybe it wasn't exactly the right ratio to settle on but now we have it moving it would just result in a jump in prices.

Better to look at why house prices are out of reach, lack of supply, labour expensive, land prices etc.

I think I looked at the stats from the Central Bank at the time and the 3.5 limit makes sense for majority of people but it is a bit crude.
Above that threshold there was a noticeable increase of percentage of defaults.

But I don't think they crunched the numbers enough with regard to the actual income versus the 3.5 limit.

Someone earning say €60,000 versus €120,000 there is a big difference in disposable income.
The latter could afford to put more money to property and live the same lifestyle as the person on 60k.

The Central Bank seemed to assume that the person on 120k would across the board have higher expenses than the person on 60k but I did not see any stats to back that up.

PinotNero wrote: »

A person on 120k would get an income limit exemption from at least one bank/lender.

You're probably right, especially if you apply in first part of year - there seems to be some systems issues with the banks on tracking exemptions which means they usually don't avail of their full allowance per year.