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Central Bank to limit amount banks lend for home purchase

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    #3212
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    I'm kinda repeating a question/assertion posted on the Property Market 2015 thread so apologies if you also follow that one:

    When will the Central Bank limits truly take effect?

    We know they came in in February but that people who had mortgage Approval In Principle (AIP) have a months' grace - typically six months.

    My guess is that a fair few of these AIPs have already washed out of the system and the remainder won't be drawn down.

    If your approval runs out in August - six months after the rules came in - and you are not sale agreed yet, there isn't much time. Even if a house comes to market this week, by the time you see it, allow for second viewings, go through the bidding and then begin the legal process, time is against you.

    Thoughts?


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    #3213
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    IMF Research Has Lessons for Ireland on House Price Inflation

    The salient finding for us is that LTVs and DTIs are effective in reducing loan growth and improving the debt-service capacity of borrowers. But two IMF researchers say such measures were “not always” effective in curbing house price growth.

    <snip>
    Tentative Irish evidence points to moderation in the rate of price growth generally and a speedier advance in prices outside Dublin since the Central Bank stepped in. It’s still far too early, however, to say what the eventual impact of the Central Bank loan caps will be.


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    #3214
    seamus
    Registered Users Posts: 68,317 ✭✭✭✭seamus


    I tend to agree with the article that the new rules have the potential to result in investors accelerating house prices beyond the lending ability of your average buyer. But that's dependent on it making sense to invest in the first place. I can't see anyone for a long time discussing property investment as a good bet in Ireland again.

    At the individual level though, these rules can only really be positive and should protect borrowers from future economic downturns.

    Just bought a couple of weeks back and so I was going through the documentation from our previous mortgage (obtained in late 2007), and it's quite incredible what we and the banks were doing.

    The new lending rules meant that this time around, we were really pushing all of the envelopes in terms of what the bank could give us. Pushing past it in some areas. Combined we're earning 50% more than we were in 2007, and were looking for a mortgage that was just 7% larger than the one we got in 2007. And by jaysus did we have to fight for it. In 2007, we didn't really have to right at all. It was basically just handed to us.
    But the end result of the new rules putting a regulatory cap on our borrowing is that our repayments on the new mortgage are 20% less than our repayments in 2007.

    Which from our individual level gives us a lot more flexibility. We can realistically weather a relatively large drop in income without having to forgo basic household needs or think about restructuring our mortgage.


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    #3215
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    The purpose of the measures is not to reduce house prices. It's to protect the banks from the risks of over-lending against assets that may go down as well as up in price.


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    #3216
    Perciville
    Registered Users Posts: 12 ✭Perciville


    Deleted User wrote: »

    When will the Central Bank limits truly take effect?

    I'd imagine they'll start to take effect now for the non-FTBers at least. Any new properties coming online now should have fewer potential buyers, so less demand.


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    #3217
    seamus
    Registered Users Posts: 68,317 ✭✭✭✭seamus


    gaius c wrote: »
    The purpose of the measures is not to reduce house prices. It's to protect the banks from the risks of over-lending against assets that may go down as well as up in price.
    No, agreed. But at the same time a regulator has a duty to consider the wider economic implications of any regulations that they make.

    A measure which ensures that borrowers cannot overstretch themselves becomes self-defeating if it causes property prices to go beyond people's borrowing capabilities.

    The ultimate aim of the rules is a stable and healthy mortgage market, overlending or underlending means that the market is in trouble.


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    #3218
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    seamus wrote: »
    No, agreed. But at the same time a regulator has a duty to consider the wider economic implications of any regulations that they make.

    A measure which ensures that borrowers cannot overstretch themselves becomes self-defeating if it causes property prices to go beyond people's borrowing capabilities.

    The ultimate aim of the rules is a stable and healthy mortgage market, overlending or underlending means that the market is in trouble.

    BTL investors face even stricter rules on lending so it's unlikely they'll gain a competitive advantage on house buyers. You're taking Sindo scaremongering at face value.

    The resources available to buy property are being reduced from the credit side. Unless that's matched by an increase on the cash-only side, property prices will drop.


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    #3219
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    Perciville wrote: »
    I'd imagine they'll start to take effect now for the non-FTBers at least. Any new properties coming online now should have fewer potential buyers, so less demand.

    11th August is D day for 10% approvals AFAIK.


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    #3220
    Perciville
    Registered Users Posts: 12 ✭Perciville


    gaius c wrote: »
    11th August is D day for 10% approvals AFAIK.

    In our own case, it's Aug 19th. I.e. funds must be drawn down by then.


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    #3221
    jay0109
    Registered Users Posts: 2,670 ✭✭✭jay0109


    But for Aug 11th/19th deadlines, the house would want to be sale agreed a few weeks at this stage and surveys etc done, in order to have funds drawn down by then.

    So in theory, the current stock of 'For Sales' will all fall under the new rules regime


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    #3222
    Perciville
    Registered Users Posts: 12 ✭Perciville


    jay0109 wrote: »
    But for Aug 11th/19th deadlines, the house would want to be sale agreed a few weeks at this stage and surveys etc done, in order to have funds drawn down by then.

    So in theory, the current stock of 'For Sales' will all fall under the new rules regime

    Agreed.


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    #3223
    seamus
    Registered Users Posts: 68,317 ✭✭✭✭seamus


    gaius c wrote: »
    11th August is D day for 10% approvals AFAIK.
    BOI appear to be taking some liberties with this - they offer "house hunter" credit approval, which you then convert to full approval by simply providing the name of the house you want to buy and a valuation for it.

    Both in turn are valid for six months each, so in theory some BOI approvals under the old rules may be valid until early 2016.

    In reality those with "house hunter" approval will have to go sale agreed by early August if they want to buy a house under the old rules.

    The numbers with this approval have to be very low, 3 figures or even less, but they could be there.


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    #3224
    matt-dublin
    Registered Users Posts: 4,468 ✭✭✭matt-dublin


    EBS have already been told by the CBI that's they've hit their limits now.

    We've AIP until the 16th but have been told once we go sale agreed on our own we can get an extension.


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    #3225
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    matt-dublin wrote: »
    EBS have already been told by the CBI that's they've hit their limits now.

    We've AIP until the 16th but have been told once we go sale agreed on our own we can get an extension.

    Source?


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    #3226
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭The_Conductor


    gaius c wrote: »
    Source?

    It has been in the media- the EBS have run completely roughshod over Central Bank rules- even the 5 million fine during the week is completely unenforceable (the fine was for historic breaches of lending and back office rules and procedures- and was brought to the CBI's attention by a whistle blower). I'm sure its been written about somewhere- I'll see if I can find a link for you.


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    #3227
    jay0109
    Registered Users Posts: 2,670 ✭✭✭jay0109


    Was that 5m fine not for INBS
    http://www.irishexaminer.com/breakingnews/business/irish-nationwide-building-society-fined-5m-for-regulation-breaches-686557.html


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    #3228
    gosplan
    Closed Accounts Posts: 9,828 ✭✭✭gosplan


    jay0109 wrote: »
    Was that 5m fine not for INBS
    http://www.irishexaminer.com/breakingnews/business/irish-nationwide-building-society-fined-5m-for-regulation-breaches-686557.html

    Awesome stuff.

    Did the central bank basically just fine what is essentially a publicly funded company €5 million?

    I'm only surprised that someone somewhere had the cop on to say 'let's not bother collecting it'.


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