# Are banks giving mortgages at the moment?



## lynchie1978 (19 Mar 2009)

Hi all. I am a civil servant with a partner who is self employed in the wholesale industry. I have been gifted a site and have got full planning permission on this site. My income is 40k and my partner is 45k/. we have no loans or debts. 
we are looking for a mortgage of between 350 and 400k. I have brought my details to a broker who approached one bank and they have said no. My broker is telling me that i should forget about it for the next year.
Is this right? does anyone have any insight into this. I know the banks are in turmoil but surely there is money there to lend?
any insights would be great.


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## LDFerguson (20 Mar 2009)

This myth that banks are not lending at the moment is exactly that - a myth.  Banks will still lend to qualifying customers.  Your broker evidently didn't try the right lender.  Try elsewhere.  You should have no problem getting the loan you need.


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## Bronte (20 Mar 2009)

OP can you tell us which bank refused you?  Is your broker trying other banks?  Based on what you have posted I can't see why they would refuse you, possible the fact that your partner is self employed and therefore presumable the job is viewed as precarious by the banks in the current climate is one reason I can see for you being refused.  Do you have savings?  Maybe you are looking for too much.  How much is the building cost and what is the 'real' value of the site.


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## Towger (20 Mar 2009)

Bronte said:


> Maybe you are looking for too much.  How much is the building cost and what is the 'real' value of the site.



That is exactly my thoughts. What is €350~400k going to build, another McMansion? For example in the height of the boom in 2006 and in Dublin it cost €165 to build (ex bathroom & kitchen) a 3 bedroom detatched house.


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## heebusjeebus (20 Mar 2009)

I've got a mortgage approved in principle from AIB. They had no problem with my application.
Good rates from AIB too for first time buyers.


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## Bronte (20 Mar 2009)

heebusjeebus said:


> I've got a mortgage approved in principle from AIB. They had no problem with my application.
> Good rates from AIB too for first time buyers.


 
Not to rain on your parade but I'm not happy with the very very low introductory rate for first time buyers as I think it's lulling them into a false sense of low payments.  I hope they have stress tested you.  Would you mind telling us your salaries, deposit and purchase price so we can get an idea of what banks are looking for?  I am happy for you in that you got mortgage approval.  Best of luck with the house.


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## heebusjeebus (20 Mar 2009)

Bronte said:


> Not to rain on your parade but I'm not happy with the very very low introductory rate for first time buyers as I think it's lulling them into a false sense of low payments.  I hope they have stress tested you.  Would you mind telling us your salaries, deposit and purchase price so we can get an idea of what banks are looking for?  I am happy for you in that you got mortgage approval.  Best of luck with the house.



Salary is 47k, mortgage is 92% of 290,000 which is 267,000.


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## Bronte (20 Mar 2009)

So 5.6 times income, is your employment good professional or civil servant? Also what percentage of your take home pay will the mortgage take? I didn't think they were giving out over 90% loans.


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## Dreamerb (20 Mar 2009)

Bronte said:


> Not to rain on your parade but I'm not happy with the very very low introductory rate for first time buyers as I think it's lulling them into a false sense of low payments.


I don't think low introductory rates are an inherently bad thing, _provided _buyers realise that their payments will rise and budget accordingly. The advantage is that people buying their first homes can better afford to furnish them during that lower-rate period. Of course, low rates can also hide that the "usual" rate may be less competitive than other offers and buyers can end up paying much more over the lifetime of the mortgage. 

As with all special introductory offers, they're fine if you understand them fully and use them properly. I view them like those 0% finance offers, where if you don't make the balloon payment in time you end up paying 20% interest or so: a good tool if you've budgetted to take the maximum advantage.

Mind you, 5.6 * income?


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## heebusjeebus (20 Mar 2009)

Bronte said:


> So 5.6 times income, is your employment good professional or civil servant? Also what percentage of your take home pay will the mortgage take? I didn't think they were giving out over 90% loans.



I'm in IT and job is secure. I wouldnt dream of getting a mortgage if there was a chance I could lose my job.
I've no credit issues, have no loans to pay off.
I'd say based on the special 1st year deal they are doing for first time buyers i'll be putting a just under a 3rd of my take home pay into the mortgage but it works out at only 100 euro a month more than what I'm paying for rent at the moment.


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## LDFerguson (20 Mar 2009)

Bronte said:


> I hope they have stress tested you.


 
All lenders are obliged by the Financial Regulator to stress test applications.


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## Bronte (20 Mar 2009)

LDFerguson said:


> All lenders are obliged by the Financial Regulator to stress test applications.


 I think they do this by 2% would this be on the low introductory rate or the normal variable rate?  Are you finding that people are getting loans of 92% and 5 and a half times income?


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## Yellow Belly (20 Mar 2009)

LDFerguson said:


> This myth that banks are not lending at the moment is exactly that - a myth. Banks will still lend to qualifying customers. Your broker evidently didn't try the right lender. Try elsewhere. You should have no problem getting the loan you need.


 
Myth? Sorry to differ Liam but the myth at the moment is as you put it "qualifying customers"! These are scarse like hens teeth!

I am currently a broker (ex banker) and I really should be on here blowing & shouting that loans can be sourced & that the market is still open. The reality (which we all know) is unfortunately FAR DIFFERENT. 

All the banks have retracted criteria (to reduce the numbers of "qualifying customers") to such an extend that a very low percentage of applications are now being approved. So while the banks can spin the PR that they are open for business the reality is that the number of loans they are approving is tiny, and the vast majority of would-be-borrowers are encountering extreme difficulties in raising finance.

The following are the realities:


Any first time buyer with children will struggle to get an approval unless they use PTSB (whose calculation system doesn't reduce approval amounts by a loading for having kids)
AIB will do 92% finance (if you can get it) otherwise the norm is now 90% i.e. most FTB's do not have the 10% deposit & have no prospect of saving this if they are renting
Anyone who wishes to finance an investment property has very little choice (PTSB/Bank of Scotland won't even look at applications). Average loan to value on offer is 75% i.e. an investor would need to put up 25% deposit plus stamp duty plus legal plus fit out- market is also dead on this basis
More alarmingly people who may now find themselves in a cashflow crisis in keeping with car loans/credit cards/mortgage etc etc will also find it very difficult to refinance. Apart from AIB the max average ltv on a remortgage is now 75% or less. With falling property values & also a number of lenders refusing to refinance short term debt some of these people are the ones missing repayments as they can no longer afford the monthly costs.
As for commercal property loans- this market is DEAD (not even a faint pulse left). Many lending managers have been given a ZERO lending target this year
I know you are a broker/advisor too, but rather than generalise regading "qualifying applicants" getting loans I really think we all need to accept that the banking/mortgage situation is now critical. If this market does not free up in the immediate future, then it will have massive consequences for all of us. We can no longer beleive the spin & PR of our banks as we all now know the type of institutions which they REALLY are, if the availability of credit is not maintained then we are doomed as a nation. It is our €7bn which is being inputted to these banks (is this to stimulate growth & drag us out of recession or just an "insurance" pay out to the banks balance sheets?)

I would urge any borrower who experineces a problem in getting credit from the banks to contact their local TD or representative as these people need to know EXACTLY how the banks are treating customers. Our Dail needs to be made aware of the modus operandi & criteria currently being enforced which is excluding the vast majority of borrowers. This is ultimatley what will stiffle economic growth going forward.

Sorry for the rant but I have to relay experiences at present.


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## NorfBank (20 Mar 2009)

heebusjeebus said:


> I've got a mortgage approved in principle from AIB. They had no problem with my application.
> Good rates from AIB too for first time buyers.



Slightly better rate at AIB but €1000 to first time buyers at ICS.
On €267,000 over 30 years the repayments in year one would only be €250 less if you go with AIB over ICS making the ICS option €750 better.

They then both revert to similar variable rates ICS 3.20% as against AIB 3.15% making AIB cheaper by around €7 per month. Thus you would have to stay with AIB for around 9 years to make it a more attractive deal than the €1000 up front.

This is not taking into account the fact that you will get more Tax Relief on the ICS mortgage due to the higher repayments. I haven't worked this out. It's a quiet Friday but not _that_ quiet.


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## Bronte (20 Mar 2009)

Actually YellowBellow I think some of the restrictions you've pointed out in getting mortgages are a good thing.  Sane, sensible lending is the way to go.


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## Yellow Belly (20 Mar 2009)

Bronte said:


> Actually YellowBellow I think some of the restrictions you've pointed out in getting mortgages are a good thing. Sane, sensible lending is the way to go.


 
How can it be sane or sensible for a bank to refuse to refinance a loan that a borrower is actually repaying? I have clients who owe €185k on a property valued €400k- they are on a variable rate of 4.5% & want to switch to rate of 3.15% - the repayments will actually be almost €90 per month less than currently & this was refused.

Commercial client with existing €1.5m loan against 3 commercial properties. Existing loan interest only period expired & lender is insisting on capital & interest repayments- he wanted to switch to another lender to remain on interest only. Has €250k in cash savings, bank a/c always 50k plus in credit, and excellent a/cs- only reason he wanted to stay on interest only was to keep any possible cashflow pressures off in the future as he actually wants to accelerate capital & interest repayments over the next 5 years when this downturn should have bottomed out- declined by 8 commercial lenders.

Commercial client almost identical to above- wanted to refinance to stay on interest only- no equity release or increased facility. 8 lenders wouldn't even look at it due to fact that he was in the tile wholesale business even though he had bank statements & draft a/cs to Jan 2009 to show his turnover & profitability holding. A/cs, bank statments & savings all excellent- didn't even make it past first base!

FTB- approved in principle by AIB for €195,000. AIP retracted to €160k the following day as they had forgotten that she had a child.

This is just a taste of what is going on. Let me be very clear I have been in the finance banking game for over 15 years. There is responsible lending & then there is a lending "embargo" - we are way closer to the latter than the former!

For those of us who are on the property ladder it is just a little rich for us to adopt the holier than thou attitude to lending. Young people need a start to get them going, and while I am all for sensible lending some of the tactics of the banks at present are nothing short of despicable. The really galling thing is then when you open the newspaper to be greeted by a full page advert of "propoganda" purporting to be "open for busines".


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## KFB123 (20 Mar 2009)

Commercial banks are in general still giving out funds for guys like your first case as he seems very strong, unless I'm missing something.
For the second client I can understand why he was declined due to nature of business. 
However it can be frustrating dealing with them


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## Yellow Belly (20 Mar 2009)

KFB123 said:


> Commercial banks are in general still giving out funds for guys like your first case as he seems very strong, unless I'm missing something.
> For the second client I can understand why he was declined due to nature of business.
> However it can be frustrating dealing with them


 

I have already said that neither of these clients were approved by any of 8 commercial lenders:

AIB
BOI
BOSI
PTSB
ACC
KBC
Ulster Bank
National Irish Bank

4 actually asked not to bother sending in the application as it would be a "slow no"! I have contacts in all institutions from my years in the business & even the branch managers can now admit (albeit in private) that it is almost pointless sending commercial cases to the lending unit as there is ZERO appetite. 

In terms of criteria- if you assess peoples rental income on their property investment at 50%, plus take only 70% of their net profit & then stress test that on a capital & interest basis at cost of funds plus a 5% margin- then even the sultan of brunei would struggle to get loan approval- but this is effectively what is happening.

What worries me is that how much of the capital on the banks books is being used to "roll over" developers monthly interest charges & is being "coded" as new lending by the banks to keep the figures up?

At this stage I am ultra sceptical & unfortunately cynical about this whole business as there are "untruths" being spun to deceive both us as bank customers but also our state i.e. us again as we are the ones inputting the new capital as the international credit markets don't beleive our banks anymore either!


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## NorthDrum (21 Mar 2009)

In relation to the O.P's question.

The answer really is, banks are only giving out mortgages to clients that meet very stringent criteria (each bank has slightly differant criteria).

At the moment the first thing to concern yourself when applying for a mortgage is who will offer you AIP (acceptance in principle).

Given the brief details you have provided, you look like a decent candidate for a mortgage. Unfortunatley thats not always enough in the current environment.

Did your broker just try one mortgage company because he only has one agency or is it because he felt you only had a chance with one specific company!

I assume the site is down the country (possibly not in a town) as banks are slower to lend to clients looking for property outside of towns.


The most important factors when looking to take out (or alter) a Mortgage of any kind are:

Your Salary (combined salaries)
Ability to repay the mortgage (factor in loans and liabilities)
Satisfactory Employment record
Have a deposit and /or savings (min 5% first time buyers)
Clear Credit History
It can be frustrating being knocked back, but find out exactly the reasons why you were declined. Another company may accept your application . .


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## Senna (22 Mar 2009)

Yellow Belly said:


> I would urge any borrower who experineces a problem in getting credit from the banks to contact their local TD or representative as these people need to know EXACTLY how the banks are treating customers. Our Dail needs to be made aware of the modus operandi & criteria currently being enforced which is excluding the vast majority of borrowers. This is ultimatley what will stiffle economic growth going forward.
> 
> Sorry for the rant but I have to relay experiences at present.



I know this is your job and lively hood which your family depends on so i can understand the passion in your statements.
Having said that i think you need a health dose of reality.  We are just coming out of a huge asset bubble the likes of which haven't been seen before, the country is in a mess and property was a huge factor.  Banks were bailed out largely because of this, bailed out with public money.  
Now banks are returning to traditional lending criteria, 3.5 times main earner and 1 times second, ignoring what went on since 1999, this has always been the way and many would say lending criteria in the 1980's were much stricter.
So say a typical couple both earning 35k apply for a mortgage, that would give them a mortgage of 140k, assuming they need 10-20% deposit, that puts the house price at around 150-160k, doesn't that look like a more realistic house price, not the 260k current national average house price.
Now the real questions;
Would a couple (as example) earning 35k get a mortgage for 150k? (i know its yes, maybe not all banks but the majority)
Is it better for banks (as the last 10 years) to give mortgage on 10 times income? Is that really better for the country and future generations?
Is it better to have average house prices complety out of line with wages?

Finally, banks have gotten a whole lot stricter, but you (general) cant complain about them getting bailed out and then complain that people aren't getting mortgages.  When the average house price is in line with average wages, mortgages will be more freely available, but still only those that have secure employment and can prove ability to service the loan will get them (your ability to pay currently and previously does not guarantee future ability).  No one has a god give right to own a house, a point that was lost on most people during the last few years.


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## realtin (22 Mar 2009)

I rang BoI about two weeks ago enquiring about a first-time buyers mortgage.  I was completely and utterly shocked by the amount they were willing to lend - it was 6.65 times our combined salaries!!! 

it seems that they're still up to their ridiculously lenient ways


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## lynchie1978 (22 Mar 2009)

My broker has tried one bank so far-kbc but has told me that it is kind of pointless going elsewhere as his colleagues in the mortgage game have said that banks are not lending. I thought i would be a good candidate for a mortgage as i am in permamnt work and have been for years now. my site is in a prime location in dublin 15 and has a conservative value of 200k-of course it is only worth was someone will pay so at the moment i am sure it is worht nothing! my plans are not for a mac mansion-but the house has a basement which adds significantly to building costs.
it has taken me so long to get to the satge of looking for a mortgage and i thought this was going to be the straigtforward part-wasnt banking of a banking crisis though. thanks for all the replies-please keep any ideas of advice coming-i am heartened to ehar that it is still possible to get a mortgage. I am also glad to get infomraiton about the reality of the banking sector at the moment. thanks again.


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## allthedoyles (22 Mar 2009)

Senna said:


> Now banks are returning to traditional lending criteria, 3.5 times main earner and 1 times second, ignoring what went on since 1999,
> 
> So say a typical couple both earning 35k apply for a mortgage,
> that puts the house price at around 150-160k, doesn't that look like a more realistic house price, not the 260k current national average house price.


 
So next question, where can one buy a house for 160k ?


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## Senna (23 Mar 2009)

you'll just have to wait awhile longer for prices to drop, they are dropping and WILL have to drop to a pre-bubble level which was around 3.5 times main earner and 1 times second.  Of course if you dont live in a city then 160k will already buy plenty.

To those people that are going to brokers and being told there is no point in even trying, are you going in looking for €X or are you just looking what size of mortgage is possible.   Have you considdered/tried approaching a bank(s) directly.  If it were me i would start with AIB, then BOI, then EBS.  Go in and see what size of mortgage you can get, of course if you aren't in very stable employment or you give the banks any other reason for doubt, you wont be entertained.  Such is life.


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## Bronte (23 Mar 2009)

Yellow Belly said:


> Young people need a start to get them going, and while I am all for sensible lending some of the tactics of the banks at present are nothing short of despicable.


  What start do you think they should have.  The best start is to have a history of saving, have a decent deposit and ask for a sensible amount.  I agree with Senna that until house prices are back to a normal multiple of the average industrial wage banks won't be lending.


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## Yellow Belly (23 Mar 2009)

Bronte said:


> What start do you think they should have. The best start is to have a history of saving, have a decent deposit and ask for a sensible amount. I agree with Senna that until house prices are back to a normal multiple of the average industrial wage banks won't be lending.


 
Nice ideology in Utopia! I actually agree with you re property being a lower multiple of the average wage but then again I think both of us are already on the property ladder so we can have the "holier then thou" attitute- can't we!

For a start there is NO lender using the "multiple" method of assessment for mortgage applications as this method is as crude as a blunt knife & makes no reference to the other borrowings of the applicant. All lenders now use a "percentage of Net monthly income" & in most cases rule that 35-40% is the max that the borrowers should be paying in monthly repayments. This is a far more equitable, and realistic method of assessement.

Like I say it would be great if people could find property for 3-4 times the average wage but then again it would be great if I could find the site for my home again for €5k!!! 

In any event for anyone whom has any serious involvement in the property/finance market it has been a combination of the investors & interest only finance who destroyed the market- not people purchasing property to live in themselves.

The property market was dead in 2002 as up till then mortgages (whether for investor or owner occupier) were capital & interest. At that time the rents achievable were less than the mortgage (cap + int) so investors were pulling out of the market. All of a sudden (post 9/11) interest rates drop to 2% & the banks bring in interest only finance so the valuation method for property changed- now with cheap money & only having to pay the interest investors could purchase property & have money left over having paid the interest so of course everyone piled in!!!

Fast forward to 2006/07- property values had increased at such a speed that the rent would now not cover even the interest------ooppps! Here comes the car crash!!! BANG!

FTB's & owner occupiers did not drive this "bubble" they were merely "infected" by the disease carrying investors (I was one of them). The increased demand in the market by instaiable investors drove the prices artificially high so when one is looking for the reason that the whole thing came crashing down the FTB's & owner occupiers should be the last to be blamed- they merely did what they had to do, or borrowed what they had to borrow just to get somewhere to live.


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## Bronte (23 Mar 2009)

I take issue with your last point.  You forget that people didn't have to buy at all.  Interestingly I see the gardai are now in on the blaming of others act.  They are in permanent pensionable employment and apparently in arrears with their mortgage and want help.    

The OP in this situation can save for another year and apply to a bank when things are more settled and may actually be back on here in a year's time saying it was the best thing ever.


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## Yellow Belly (23 Mar 2009)

People didn't have to buy at all? What a bastion of wisdom you are! Where could they have lived for the last 5 years then?

Save for another year? How will this be possible for someone who is renting (and therefore theoretically paying someone elses mortgage during this period)

Blame? I am to blame for the property bubble as is every other investor over the last 6 years! Was it not investor demand which drove the property market? How many people were "part time" property moguls? I am not seeking to blame anyone in particular but I am honest enough to point out where the flaws were created in the market.

It is a bit rich to declare that "people didn't have to buy at all" with the 20/20 vision of today.


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## gurramok (23 Mar 2009)

heebusjeebus said:


> I'd say based on the special 1st year deal they are doing for first time buyers i'll be putting a just under a 3rd of my take home pay into the mortgage but it works out at only 100 euro a month more than what I'm paying for rent at the moment.



God help you when that rate increases in a few years to a 'normal' 4%+


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## Bronte (23 Mar 2009)

So yellow belly you think people should not have to save before they buy because they are paying rent?  What's wrong with renting for 5 years, lots of people do?  I don't buy into this myth of it's the investors who pushed up prices and forced the poor first time buyers into purchasing overinflated prices for property.   Whoever individually thought it was wise to purchase property at many many multiples of income on 100% mortgages, with credit card debt, car loan payments and overdrafts should really have asked themselves if they could afford the new house, fully kitted out, timber flooring and garden laid to lawn etc should really ask themselves the question, who forced me into this situation of a massive mortgage on a decreasing asset.   And the answer is themselves.


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## sadie (23 Mar 2009)

Well in fairness to everyone - this borrowing at a massive 10 times salary was 'normalised' by the Banks. The wonderful First Time Buyer was held up on some sort of pedestal as doing their civic duty by buying a house as soon as they had done their Leaving. 
So although yes, it was a free choice by individuals, let's say the environment was being greatly massaged to encourage choices of a particular kind.


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## Yellow Belly (23 Mar 2009)

Personal Opinion- but I see very little wrong with someone borrowing 100% of the cost of a house (for owner occupation) provided it is on a capital & interest repayment basis. At least on this loan the borrower will have the loan paid off at some point in the future.

Main Reason Why Property Market Imploded- interest only finance- the original NEVER NEVER. The capital amount borrowed will NEVER be paid off until the loan is reverted to capital & interest. This form of finance nurtured the speculative element of the property boom as it made finance look less expensive than it really should be.

Resonaning for this opinion- property is historically a capital "appreciating" asset. This I suppose should also have the prefix- appreciating IF you hold it long enough. If someone needs a home, I see no problem with them borrowing 100% of the cost as over the next 20 years this property should increase in value. Yes they may have an initial period of negative equity- but then again negative equity is a state of mind rather than a financial cost. How many people borrowed 100% of the cost of their car- a depreciating asset? Andf I have never heard any complaints regarding this which is mathematical disaster.

Interest only finance is the biggest culprit in bringing the Irish market crashing down not 100% mortgages. The 100% mortgages mean that more people than were necessary are now most likely in negative equity, however it was interest only which fed investors like cocaine to an addict.


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## JiggetyJig (23 Mar 2009)

We were recently approved in principle for 3.9 times our combined salaries.  (could have got approval for 4.2 times)  We have 3 kids. I am being let go from my job this week - my salary is about 1/5th of our total salaries. 
So today I was talking to the bank about what affect this would have on our application. I asked if they could recalculate what we kind of mortgage we could now qualify for. They obviously forgot we had kids because the reply I got was a figure that was 5.8 times OH's salary!!!!!  Crazy!!
There is no way I would consider taking that kind of mortgage!  I like to eat too much!    But adding to Realtin's comments, it seems banks (when they do approve a mortgage) have still lost the run of themselves!
OK now off to get something to eat!


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## Senna (23 Mar 2009)

Yellow Belly said:


> For a start there is NO lender using the "multiple" method of assessment



I dont think anyone is thinking the multiple method is the only assessment needed, but it gives a much better indication of what a bank should be lending rather than the 35-40% method.  Banks left the multiple method as interest rates were falling and so the percentage method meant more money could be lent.  The problem with the percentage method is it depends on current rate and stress testing, which i'm sure everyone will agree was not strict enough during the bubble.
With the multiple method it give a better base for lending and is not so depended on low interest rates.



Yellow Belly said:


> Personal Opinion- but I see very little wrong with someone borrowing 100% of the cost of a house (for owner occupation) provided it is on a capital & interest repayment basis. At least on this loan the borrower will have the loan paid off at some point in the future.



100% mortgage certainly were not the cause of the bubble, but there were a reckless lending practice.  Having a deposit means that the buyer has equity in the house from day one (assuming the market is growing) meaning the house could be sold easier should problems arise and it proves a history of saving.  The availability of 100% mortgage meant many people (mostly FTB's) were able to wake up one morning and think, today i'll buy a house, it really was that simple during the boom.  Were as working towards a goal of buying a house gives the buyer more time to consider the purchase and allows more time for research into the market. Research into the market could have avoided many foolish purchases during 2005/6/7.

I would agree on your interest only views, the market was fuelled by investors and greed.  Even this website advocated the use of IO and even told people NOT to pay off capital, but thats of another day.


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## Dreamerb (23 Mar 2009)

Senna said:


> I would agree on your interest only views, the market was fuelled by investors and greed. Even this website advocated the use of IO and even told people NOT to pay off capital, but thats of another day.


Whoah there! It's perfectly sound advice to recommend that investors use interest only. It's for tax planning purposes. The advice wasn't "Ah sure go for interest only and that way you can spend a whole lot more and only worry later about whether you may be over-extended". It was about minimising tax liability (often coupled with advice on investing the portion of rental income in excess of financing and operating costs to achieve maximum return, or sometimes to pay off more expensive borrowings). Used *sensibly *that's still the best way of dealing with an investment property. 

Home-buyers, as distinct from investors, should (IMO) generally not take interest-only period for anything more than a few months at a time, for budgetting purposes; it's a tool which can be used to budget for particularly expensive or low-income periods - say, immediately after purchase of first home, 3 or 6 months to allow for furnishing / fitting out expenses, or to cover periods of maternity leave. Or increasingly, to give breathing room if a buyer loses his/her job. Ideally, it should not be necessary for a home-buyer to take interest only periods but there are all sorts of situations where it can provide a valuable respite for people who have been financially responsible in the choices they've made.


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## sadie (23 Mar 2009)

JiggetyJig, when you said you got Approval in Principle, do you mean you actually got an official letter from the Bank for 3.9 times combined salaries, having submitted all your payslips, statements etc?


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## Bronte (24 Mar 2009)

There is another point about having a deposit rather than being given a 100% mortgage.  It makes the purchaser think about spending their own money as opposed to the banks money.  That always make people have more sense.  

And I agree with Dreamerb on investment mortgages being interest only where there are sound financial and tax reasons for having one.  Personally I don't like them.


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## JiggetyJig (24 Mar 2009)

Sadie - yes - approval from the bank after all payslips, etc submitted.


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## Yellow Belly (24 Mar 2009)

Guys the multiple of income is flawed- and has been proved to be so- that is why all lenders switched to the net income ration method.

If someone earns €50k per annum & they can borrow a multiple of 3 times salary they would qualify for €150k mortgage- however what happens if they have a €25k car loan, €10k on credit card & €5k personal loan- how are these reflected in his approval?

The net income ratio method is recognised as the fairest assessment of ability to pay as this takes someones net monthly income, takes a percentage (usually 35-40%) which can be used to repay ALL loans including mortgage. Effectively if someone has other short terms loans then this reduces their borrowing capability.

In any event if you guys want people to have the ability to borrow only to 3 times income, you will effectively bankrupt the entire country. Your idea would have been welcome approx. 1996 but unfortunately there is no point in closing the stable door when the horse is way down the road. The effect of your draconian borrowing proposals would be a very effective way to cause the following:

* Place every property purchased since 2001 in negative equity
*Reduce the pent up VAT due to the state by almost 50%- and boy could we do with the maximum revenue at the moment
*Force trade unions to seek massive pay hikes (so that their members might be able to buy a home)
*Bankrupt every builder/developer/sub contractor/DIY store/Builders Provider & most probably all bank as well- indeed even the breakfast roll seller would go down!

To be honest this whole "reckless" lending issue is oversold at the moment & smells of "the bandwagon" approach. The _Irish _banks have always had a far more conservative approach than many other 1st world countries- yes as in all systems there have been some terrible lending decisions but overall the Irish mortgage market IS relatively stable. Most of the repossessions (which is a tiny percentage of the loans taken out) are in favour of "Non Status Lenders" such as Start who should never have been given a license to operate by the Financial Regulator in the first place. Most repossession orders from the main stream lenders are actually in relation to investment properties (where the investors just wish to walk away), and in other situations where people may have lost their jobs- no matter what method you have used for loan assessement if that persons income reverts to zero then this will be a problem anyway. 

If we assume that the "average" wage in Ireland is even €35,000 then at 3-4 times this amount i.e. €105,000-€140,000 where exactly are people going to find property to purchase? We have got to be realistic?


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## NorthDrum (24 Mar 2009)

Debt - Service ratios are being used (ie ability to repay and live an affordable life) more then the "times salary" ratio.

For example bank of Scotland want to see people left with between €1500 (single applicant) to €2200 (couple) in their pockets after their mortgage is paid.

People should factor in interest rate increases when deciding whether or not to take out a mortgage.

I have been told I can get up to €210,000 (possibly even €220,000) on somebody on an income of €34,500 . 

Its not set in stone, but my broker consultant seems to believe that it has a good chance going through. Client will be looking for just below 80% LTV. They may not require full amount and are in a very strong employment position.


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## jonq74 (25 Mar 2009)

got a mortgage from AIB too FTB 2.4%apr fixed. 184k over 30years. income 34500 per year. funny thing is my broker couldnt get me it.  had to go to AIB direct.


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## Senna (26 Mar 2009)

Yellow Belly said:


> Guys the multiple of income is flawed- and has been proved to be so- that is why all lenders switched to the net income ration method.



When my parents took out their mortgage in 1984, they also had a small loan from the credit union.  The bank would not give the mortgage amount wanted untill that loan was repaid (i think in the end they were able to repay half and reduce the payments or extend the term etc to get the mortgage). 
The bank was working on the multiple system but it also took other outgoings into account.  This is what i and other propose should be used, you seem to think that the multiple system takes nothing else into consideration, you seem to be ignoring this point for your own agreument.



Yellow Belly said:


> The net income ratio method is recognised as the fairest assessment of ability to pay as this takes someones net monthly income, takes a percentage (usually 35-40%) which can be used to repay ALL loans including mortgage. Effectively if someone has other short terms loans then this reduces their borrowing capability.



At what Mortgage interest rate ( including stress test) should you work out this 35-40%, they're currently around 3% but could well be in double figures at some stage in the future.  Giving bigger loans at times when interest rates are low is not the way to have a stable property market.  This partice got us into the trouble we are in and its better to have a correction now rather than trying to keep this bubble afloat.  There will be pain, a whole lot, it will happen.  It can either happen now or we can pass it on to the next generation.

Keeping the average house price at anything over 3.5 times average wage is keeping house prices inflated beyond what they should be.  The last time i looked (couple of months ago) the multiple was 8.1 times and thats with the price reductions for the last few years.



Yellow Belly said:


> In any event if you guys want people to have the ability to borrow only to 3 times income, you will effectively bankrupt the entire country.


Your assuming that anyone has control of what happens in the market, no one has. Limiting mortgage borrowings will keep a stable market, i dont see it as a way of reducing house prices now, they are reducing anyway and will continue to reduce.  It is very possible that in 3/4/5 years time, 3.5 times main and 1 times second may give a much higher amount that the average couple needs.



Yellow Belly said:


> * Place every property purchased since 2001 in negative equity


There is huge evidence that the property bubble started in 1998, if someone purchase in a bubble, then why cant they be in NE when the bubble busts.  Also you assume that someone purchase in 2001 and still has the 2001 mortgage amount, not making any capital repayments.



Yellow Belly said:


> *Reduce the pent up VAT due to the state by almost 50%- and boy could we do with the maximum revenue at the moment


The vat amounts banded about by people like Tom Parlon are at the 2006 rates, those rates are long gone.  The government does not have this money now and are not budgeting on it.  Is it not better that the market starts to function again at a lower rate and the gov get something rather than nothing



Yellow Belly said:


> *Force trade unions to seek massive pay hikes (so that their members might be able to buy a home)


Come one now.  Just think about that statement.



Yellow Belly said:


> *Bankrupt every builder/developer/sub contractor/DIY store/Builders Provider & most probably all bank as well- indeed even the breakfast roll seller would go down!


Again your looking at the ludicrously of the bubble years and can't see beyond them.  We do have too many of all the jobs above and yes many will be cut.  The market will never go back to producing 90k new builds in one year.  This has to happen and will happen, all by itself.




Yellow Belly said:


> To be honest this whole "reckless" lending issue is oversold at the moment & smells of "the bandwagon" approach.



Ah i was wondering how long before this came up, whenever peoples eyes are opened to something, others will always argue that your jumping on the bandwagon.  This argument have been made for ages and when i was offered over 400k in 2005 (when i earned an average wage) it was blatantly obviously to me, because i knew i would not be able to pay back that amount.  P.s i did not take it.



Yellow Belly said:


> If we assume that the "average" wage in Ireland is even €35,000 then at 3-4 times this amount i.e. €105,000-€140,000 where exactly are people going to find property to purchase? We have got to be realistic?





An asset bubble usually takes the same amount of time to grow as it does to burst.  If it started in 1998 and peaked in 2006 then theoretical it should be bottomed out in 2014.  But most asset bubble bursting does not coincide with a world wide recession so it will probably be before 2014.
When the market is on the bottom, then we will see what an average earner can afford.  The market normally over corrects on the way down.

Just for the record the average house price in 1998 was 103k in dublin (90k nationally).  The average house bought was a 3 bed semi with very few shoebox apartments.  The average house price in 2006 was 430k in dublin, including all those shoeboxes.  The average wage was 32k.  
[broken link removed]

If you then note that the average wage in 1998 was 20k (22k was industrial) you find that that the 90k is spot on for the national figure (3.5 times main and 1 times second earner) and seen wages were always that small bit higher in Dublin 103k isn't really a huge jump.

[broken link removed]

So really, why do people find it so hard to believe that property must come down to an affordable level, you are still living in a bubble.  Banks are lending at a level they should, you just have to wait until you find a house at that level.  Banks wont go back to the bubble lending levels, so property will have to come down to meet it.  Its going to happen regardless of the banks.


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## curiously (26 Mar 2009)

LDFerguson said:


> All lenders are obliged by the Financial Regulator to stress test applications.



Sorry, had to laugh at this - is this the same Financial Regulator who allowed our banks to dig the country into a financial hole?

I wonder do they use the same stress tests now as in 2007 and previous years?


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## curiously (26 Mar 2009)

@Yellow Belly - the way I read your posts they seem exactly what I would expect from a VI. While I sympathise with anyone caught as a result of the implosion unfortunately you're talking a fair amount of nonsense.



Yellow Belly said:


> For a start there is NO lender using the "multiple" method of assessment for mortgage applications as this method is as crude as a blunt knife & makes no reference to the other borrowings of the applicant. All lenders now use a "percentage of Net monthly income" & in most cases rule that 35-40% is the max that the borrowers should be paying in monthly repayments.



In my experience this is false - I recently did some "research" as a potential customer - I approached banks directly and spoke with their mortgage advisors. All the banks I spoke to used the "multiple of income" method to assess my situation. In most cases it was 5 x income. In all cases they took current borrowings into consideration as well as family situation (i.e. kids or not) and savings plus saving history.



> Personal Opinion- but I see very little wrong with someone borrowing 100% of the cost of a house (for owner occupation) provided it is on a capital & interest repayment basis. At least on this loan the borrower will have the loan paid off at some point in the future.


This post will be deleted if not edited immediately, I'm almost not surprsied to hear this from someone who worked in banking - 100% leverage on an asset that could fall in value? Seriously, are you for real?

With rates on the floor all the short sighted people are telling us there was never a better time to borrow. Maybe short term borrowings but it doesn't take a genius to realise that after the next rate cut there is only one place for them to go and that's up. So when Europe starts to recover and Ireland is still mired in the cr4p that's resulted from our over-reliance on property related income do you think the EU will give a sh!t about us when it comes to raising rates again? And watch the money markets further downgrade our rating as the government sleep walk us into bankruptcy.

Net result? You're 100% financed property drops in value, you have NE, rates rise and you can no longer afford the repayments - welcome to many peoples nightmare.




> Interest only finance is the biggest culprit in bringing the Irish market crashing down not 100% mortgages. The 100% mortgages mean that more people than were necessary are now most likely in negative equity, however it was interest only which fed investors like cocaine to an addict.


While I completely agree with you about investors the fact is 100% mortgages will prove to be just as big a problem when people can no longer afford to cover their repayments. Sounds like you're assuming this will never happen - I believe it already is and we have not seen the full extent of the fall out yet!


Personally I think you're posts are tainted thanks to the bias that's clear as a result of your VI - sorry but someone had to say it.


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## LDFerguson (26 Mar 2009)

curiously said:


> Sorry, had to laugh at this - is this the same Financial Regulator who allowed our banks to dig the country into a financial hole?


 
I'm not saying the stress test is a perfect device.  But someone wondered if a poster had been stress-tested.  And my reply was that all banks must and do stress-test mortgage applications.  



curiously said:


> I wonder do they use the same stress tests now as in 2007 and previous years?


 
The stress-test rate has not been decreased since rates started coming down last year.


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## sadie (26 Mar 2009)

When I was applying for a mortgage a few weeks ago with Halifax, I could see on the computer screen over the mortgage advisor's shoulder it clearly said 'Stress testing at 4.5%'. Now that might be different depending on different applicants.


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## Raskolnikov (26 Mar 2009)

LDFerguson said:


> All lenders are obliged by the Financial Regulator to stress test applications.


The same Financial Regulator that knew about AIB overcharging customers since 2001?


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## Raskolnikov (26 Mar 2009)

For the record, my brother is a first time buyer and has mortgage approval from AIB for €175,000. He's single, has no kids and would be on between €30k-€35k.


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## LDFerguson (26 Mar 2009)

Raskolnikov said:


> The same Financial Regulator that knew about AIB overcharging customers since 2001?


 
As I said above, I am not defending, praising or criticising the Financial Regulator or its rules on stress testing.  That's another debate entirely.  I'm merely pointing out, in answer to a direct query, the fact that stress testing does exist and is being used by the mortgage lenders.


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