Existing unsecured debts should be factored in to the calculations

Brendan Burgess

Brendan Burgess

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|Johnny|Mary
Savings |€20k|€40k
Unsecured loans|0|€50k
Net savings|€20k|-€10k

If they are both on €60k salary, Mary will be able to buy a house for €200k, while Johnny, who is in a much better position, will be able to buy a house for only €100k.

This will encourage people who are saving up to buy a house, to hold onto their savings and take out car loans and credit union loans for their holidays.

Not sure about the best way to do this, but I think that they should be obliged to pay off their unsecured loans before buying a house.



Brendan
 
It's a bit black & white Brendan. i.e. Johnny could be on a 100K salary and Mary on 50K. Bottom line is that ability to borrow is based on ability to pay back. If proper due diligence is applied by banks assessing new loan applications they will take all circumstances into account in assessment process. A good assessment involves collecting full financial & personal information from the clients including evidence such as payslips/bank statements etc before making a repayment calculation on a stressed interest basis.
 
Hi 44b

Is my overall point not correct? Potential buyers should prioritise the deposit and borrow for cars and holidays.
 
Personally I don't think people should borrow for holidays. Period.

Edit: Actually if you're saving for a house you shouldn't be going on holidays.
 
Don't the banks have an affordability calculation as well as an LTV one? So the guy with the repayments on the €50k car loan will do better on the LTV but worse on the affordability?
 
There used to be a metric whereby mortgage payment should not exceed 40% of net income
I think that is the most sensible limit if aligned with 85-90% LTV
 
These type of metrics would be broad parameters and would not necessarily be appropriate to specific cases. repayment capacity analysis is based on a more rigorous assessment of the borrowers current financial and family circumstances.
 
Bronte said:
Personally I don't think people should borrow for holidays. Period.

Edit: Actually if you're saving for a house you shouldn't be going on holidays.
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Bronte

You are quite right, but most people will ignore your advice. I know many people who are in arrears, who seem to consider an annual holiday a right. I know of one couple who have been given a split mortgage to make their mortgage sustainable, but who still go on holidays every year.

Now, if someone wants to go on holidays, while saving to buy a house, they should take out a loan for the holiday, so that they have the 20% deposit.
 
Now, if someone wants to go on holidays, while saving to buy a house, they should take out a loan for the holiday, so that they have the 20% deposit.
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This amongst some other posts made by BB & ors just illustrates why this 20% requirement makes no real sense!!
 
I have found this in the Consultation Paper. They have considered a Debt Service to Income Ratio , but have rejected it.

[FONT=&quot]P[/FONT][FONT=&quot]art of the over-indebtedness of households in this crisis comes from the presence of additional secured or unsecured borrowings from multiple sources. A cap on mortgage LTI does not deal with this aspect and could result in leakage through additional non-mortgage borrowing, frustrating the aims of the measure. One theoretical approach to this problem of potential leakage would be to apply a ceiling also to the household’s total debt-to-income (DTI) ratio. Such ratios take into account a borrower’s total debt and are therefore, if they can be enforced, more effective in constraining the build-up of household debt. However, this ratio requires a comprehensive view of all a borrower’s debts, which has been more difficult for the lender to obtain reliably given the absence in Ireland of a Central Credit Register. The necessary legislation to underpin such a Register is now in place and the Central Bank is creating a Register, which is expected to become operational in early 2016.[/FONT][FONT=&quot]1[/FONT][FONT=&quot]1 [/FONT][FONT=&quot]T[/FONT][FONT=&quot]h[/FONT][FONT=&quot]e new Credit Register will be another important step in enhancing the functioning of a well-regulated and stable mortgage lending market in Ireland and will allow for further consideration of macro-prudential tools such as DTI and DSTI in future. Pending the availability of this Register, it would be premature to attempt to establish realistically enforceable regulations on total debt. Lenders must nevertheless seek to inform themselves about total borrower indebtedness and limit their lending accordingly, as per their requirements under the Consumer Protection Code 2012.[/FONT]
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DSTI ratios
DSTI limits act in a similar way to LTI limits by restricting the debt servicing cost relative to the income of the borrower. Imposing a DSTI ratio on net income is operationally difficult. In order to define the numerator of a DSTI ratio, a comprehensive view of the debt service cost, including all the borrower’s loans, and potentially under different interest rate scenarios, is needed. DSTI caps can be circumvented by increasing the term on the loan.

It is the Central Bank’s view that DSTI limits are less appropriate than LTI limits at this point in time. The Central Bank may introduce such a ratio in future.
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But I imagine that they are open to discussion on it as it's the first question they ask:

Question 1: Which of the tools or combination of tools available to the Central Bank would, in your opinion, best meet the objective of increasing resilience of the banking and household sectors to shocks in the Irish property market and why?
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