# Central Bank wants your views on the mortgage lending limits



## Brendan Burgess (19 Jul 2021)

*Press Release - 14 July 2021 

Have your say on the Central Bank’s Mortgage Measures Framework Review

*

· First review of the overall policy framework for the mortgage measures since their introduction in 2015.

· Engagement with the public will be a core element of that review.

· Review aims to ensure that the Central Bank’s policy framework remains fit for purpose into the future, amid continued evolution of the financial system and economy.

The Central Bank of Ireland has commenced  a comprehensive review of the policy framework for the mortgage measures. The mortgage measures were introduced in 2015 to support a sustainable provision of mortgage finance, strengthening the resilience of borrowers and lenders and guarding against the risk that another credit-fueled housing boom emerges.

The review of the overarching framework aims to ensure the mortgage measures continue to remain fit for purpose into the future, in view of the continued evolution of our financial system and economy. While the annual assessment of the measures will take place as usual later in the year, this broader review will focus on the overall policy framework, strategy and toolkit for the mortgage measures.

As part of this process, we want to hear from the public on their own experiences. To allow as many people as possible to input we have launched a new online survey. The public survey invites people to share their views and experiences on the functioning of the mortgage measures to date, their perspectives on what a sustainable mortgage market looks like, and what elements of the mortgage measures they think the Central Bank’s review should focus on. This will inform the framework review, which will run throughout 2021 and 2022.

Director of Financial Stability, Vasileios Madouros, said: “The mortgage measures are an integral and permanent feature of Ireland’s macroprudential policy framework. Since their introduction, they have played a key role in building resilience of both borrowers and lenders and have guarded against the emergence of an unsustainable, credit-fuelled housing boom.

“In line with best practice, in addition to assessing the functioning and calibration of the measures every year, we believe it is important to occasionally review the overall policy framework, strategy and toolkit. This will ensure the mortgage measures remain fit for purpose, not just now, but into the future.

“Engagement with the public will be a core element of our review. We know that behind the economic data and evidence that we look at, lie people’s own lived experiences. Understanding those experiences better will strengthen the effectiveness of our review. So I encourage people to complete our online survey.”

The survey will close at 17:00 on 30 July 2021 and can be completed in English at centralbank.ie/survey or Irish at centralbank.ie/suirbhe

*ENDS

Notes to Editor*

Further information on the Central Bank Mortgage Measures can be found on the Central Bank’s website and in our Explainer “What are the mortgage measures?”

*Further information*


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## Brendan Burgess (19 Jul 2021)

I filled in the survey.

*Theme 2 – Describing a sustainable mortgage market *

_What does a sustainable mortgage market mean to you? For example, what do you think is a manageable and sustainable amount of debt to take on in order to purchase a property?

What are the best ways to avoid repeating mistakes of the past in terms of excessively loose lending standards leading to widespread financial distress?_

My reply: 

_What is sustainable rent?

A mortgage is just renting money.

So while someone can afford to pay the interest on their mortgage it is sustainable for them.

It is also very profitable for the lender. The lender should not want a borrower who is paying market rate interest to repay capital. They will only lend it out again.

The idea that a mortgage must be repaid in full by age 65 , has evolved from custom and practice. there is really no rational basis for it.

Having said all that, a 90% mortgage is risky for both borrower and lender. In fact, an 80% mortgage is risky for both borrower and lender.

But once a borrower has reduced the mortgage to below 60% of the value of the property, there should be no obligation on them to repay further capital.

Of course, it may be the right thing for the borrower to do - to clear their mortgage before investing in a pension or buying a new car. But that should be their choice._



*Any other feedback *

_The lack of supply and high prices are caused by government policy.

It is not the role of the Central Bank to attempt to fix these problems through allowing reckless lending.

The medium to long term objective of the measures should be a maximum LTV of 80% for First Time Buyers and 70% for SSBs.

The lack of supply and high prices are caused by government policy.

It is not the role of the Central Bank to attempt to fix these problems through allowing reckless lending.

The medium to long term objective of the measures should be a maximum LTV of 80% for First Time Buyers and 70% for SSBs.

I have long called for the Central Bank to define what a sustainable mortgage is. That was in the context of mortgage arrears. It is now time for the Central Bank to discuss this issue and produce a definition which would provide guidance to borrowers and the courts._


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## Sarenco (19 Jul 2021)

I completed the survey and suggested that the measures should be retained with the following two tweaks -

1.  Replace LTI limit with a (total) debt-to-income (DTI) limit; and
2.  Set the DTI ratio at 4:1, to reflect the falls in mortgage rates since 2015.


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## MugsGame (19 Jul 2021)

I've worked in references to non-recourse loans and pensions (even if I can't borrow from my pension, this could form part of the affordability criteria - I should not be penalized by saving for a pension).


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## NoRegretsCoyote (19 Jul 2021)

A 16- day public consultation period is not very serious.


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## Brendan Burgess (31 Aug 2021)

IPAV has called for the limits to be increased to 4.5 times income for people earning up  to €60,000.









						Home ownership being blocked by mortgage rules, industry group claims
					

IPAV says rules should be tweaked to allow people borrow 4.5 times their income




					www.irishtimes.com
				




I debated this just now on the Pat Kenny show on Newstalk with Jim Power who wrote the report for IPAV.

I argued that it is not the Central Bank limits that are stopping people buying houses. It is the high prices and the lack of supply.

Allowing people borrow 4.5 times their income would not solve the problem - it would just make matters worse by pushing up the prices and leaving people with much bigger mortgages for the same house.

Brendan


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## Eireog007 (31 Aug 2021)

I heard the “debate” as I was heading back to the office. Granted I have a bias in that I already agree with your viewpoint on the 3.5 times salary restrictions (despite getting an exemption myself) but you can always tell who is winning a debate based on which person remains calm and sticks to facts and figures and which person raises their voice constantly, interrupts frequently and resorts to sarcastic remarks when failing to provide relevant details.
That being said I can still see far too many people siding with the give me more money brigade despite the obvious downsides.


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## Sarenco (31 Aug 2021)

Well, mortgage rates are now at least 25% lower than they were when the Central Bank's mortgage rules were originally introduced in 2015.

I think the LTI could be raised somewhat (perhaps to 4 times salary) to reflect the lower cost to borrowers of servicing a mortgage today.


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## odyssey06 (31 Aug 2021)

Brendan Burgess said:


> IPAV has called for the limits to be increased to 4.5 times income for people earning up  to €60,000.
> 
> 
> 
> ...


I agree with you on the impact of the change.

But are you answering the right question - from the Central Bank's perspective I mean.

Are the limits intended by the CB as a mechanism for slowing down house prices rices and creating a more stable housing market?

Or, are the limits intended to ensure people are able to repay their mortgage without getting into debt \ difficulty?
In which case borrowing 4 or 4.5 times may be of no concern to the CB as long as they can repay even if it means higher house prices.


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## Eireog007 (31 Aug 2021)

Sarenco said:


> Well, mortgage rates are now at least 25% lower than they were when the Central Bank's mortgage rules were originally introduced in 2015.
> 
> I think the LTI could be raised somewhat (perhaps to 4 times salary) to reflect the lower cost to borrowers of servicing a mortgage today.


The figures back that up but in the same vein of putting congestion charges in the inner city or increasing carbon taxes they are absolutely an appropriate measure to take but they have to be introduced after other measures to avoid exacerbating the problem (Increased housing supply/more public transport/grants for housing upgrades)


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## 24601 (31 Aug 2021)

odyssey06 said:


> I agree with you on the impact of the change.
> 
> But are you answering the right question - from the Central Bank's perspective I mean.
> 
> ...



The intention of the limits seems to be all of those things. According the the CBI website:


> The Central Bank is committed to annually reviewing the calibration of the mortgage measures in the context of wider housing and mortgage market developments, to ensure that they continue to meet their objectives of:
> 
> 
> Increasing the resilience of banks and borrowers to negative economic and financial shocks
> Dampening the pro-cyclicality of credit and house prices so a damaging credit-house price spiral does not emerge.


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## Brendan Burgess (31 Aug 2021)

Eireog007 said:


> who is winning a debate based on which person remains calm and sticks to facts and figures and which person raises their voice constantly, interrupts frequently and resorts to sarcastic remarks when failing to provide relevant details.



Interesting.  I was very surprised at Jim's tone.  I think he was very frustrated because Pat was challenging him as well.  But his comments were very personalised, which I found odd.  I would be more used to that from David Hall or a politician, but not in an analysis piece.


Brendan


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## LS400 (31 Aug 2021)

Brendan Burgess said:


> Allowing people borrow 4.5 times their income would not solve the problem



Maybe not for everybody, but it will for many.

For a couple earning a reasonably modest salary of €70k, they have some chance of getting a decent house in a decent area. Not a hope down under will the get a place on 3.5 times their earnings.

This is when they need the most help.

Its crazy even disputing this, when, we all know the Institutional LandLords blazed in un challenged to soak up the the very same properties that first time purchasers would have being looking at.

Some how I feel that race has been run. Its not working at present, change is needed, not restrictions.


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## Purple (31 Aug 2021)

The problem with increasing the income to lending multiple is or course that the €320k house the prospective buyer is chasing will now cost €360k or €380k, but it's not a linear increase (see below). Increasing money supply just increases prices, it doesn't increase supply. The same people will be in the same place in the queue. The only difference will be that the same person who was going to buy the house anyway will have paid more for it. 

The unintended consequence of all of this is that residential property has become more attractive and affordable for the cash buyer and large investor. That and the fact that there's no return on Bonds means that capital will keep flooding into the market so in that sense the existing lending multiples disadvantage anyone who is borrowing to buy a home. Given that 40% of homes are bought for cash the knock-on effect of increasing the lending multiple won't quite result in a corresponding increase in prices.


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## Brendan Burgess (31 Aug 2021)

LS400 said:


> Its crazy even disputing this,



That is it.

Debate over.

LS has pronounced. 

Brendan


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## NoRegretsCoyote (31 Aug 2021)

Brendan Burgess said:


> LS has pronounced.


Your argument rests on an assumption of complete inelasticity of supply, which is hardly plausible.

I agree 80%-90% of the issues are on the demand side. But the supply side can make a difference, and there is a good argument for moderate relaxation.

Even better than LTI would be debt-service-to-disposable-income. It would use net rather than gross income as denominator, and would look at all borrowings.


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## Purple (31 Aug 2021)

NoRegretsCoyote said:


> Your argument rests on an assumption of complete inelasticity of supply, which is hardly plausible.
> 
> I agree 80%-90% of the issues are on the demand side. But the supply side can make a difference, and there is a good argument for moderate relaxation.
> 
> Even better than LTI would be debt-service-to-disposable-income. It would use net rather than gross income as denominator, and would look at all borrowings.


So if I'm earning €250k a year I should be able to borrow 4.5 times my income but someone earning €60k a year should be allowed to borrow 3.5 times, or less.


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## LS400 (31 Aug 2021)

I wonder, are we alone on this issue within Europe.

I mean, we have had experts for years dictating whats best for first time borrowers, political parties have come and gone with the whole intention of settling the market, every new politician that has comes onboard the property train, has the latest answer.

Seriously, have we the brain power in this little Country to sort this madness out. I really don't think we have.

Restricting the amount we can borrow, will not help out this market, allowing limitless borrowing will not either. We need to change our outlook on our property needs.

First and foremost, we shouldn't need to have to own a Property. We should be able to rent a decent property in a decent area, for a decent price.

Start by shaking down the flippen abuse by Tenants on the property, ie, where your pps number follows you to the next unsuspecting property owner, and Haul that Slum Landlord over the hot coals for letting a hovel, and do it now, not wait 6 months and more, giving chance after chance. 

When the pressure is off, reasonable decision making becomes a lot easier.


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## time to plan (31 Aug 2021)

I think it would be OK to increase borrowing limits for borrowers prepared to fix for long time (10 years?) at an affordable repayment to income ratio.

PS I gave that 15 seconds thought, so am prepared to argue to the death on the Internet to defend it.


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## Brendan Burgess (31 Aug 2021)

time to plan said:


> PS I gave that 15 seconds thought, so am prepared to argue to the death on the Internet to defend it.



Good  one!


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## Brendan Burgess (31 Aug 2021)

I did think that with interest rates lower and with 20 year rates available, well maybe it's less risky to borrow 4.5 times your income.

But that is only one risk removed.

You still face the following risks: 

losing your job
Getting married
having kids
separating 
getting sick 
a general economic downturn
Getting stuck in negative equity and wanting to trade up
It's just too risky borrowing 4.5 times your income - except in cases where your income is reasonably expected to rise significantly and the Central Bank allows exceptions. 

Brendan


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## Brendan Burgess (31 Aug 2021)

But even if borrowing 4.5 times your salary were not risky, it won't help.  It will just push up prices. 

And people will have much bigger mortgages. 

We need to focus on the real causes of the problem and not look for a scapegoat.

Brendan


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## LS400 (31 Aug 2021)

time to plan said:


> PS I gave that 15 seconds thought,



 About as much as most Politicians.


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## LS400 (31 Aug 2021)

Brendan Burgess said:


> We need to focus on the real causes of the problem


It ain't whether it be 3.5 or 4.5 times salary, it runs much deeper. Its a mind set we have on needing to own our property. 

This is where I would be focusing my thoughts. Security of Tenure.


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## Brendan Burgess (31 Aug 2021)

4.5 times a person's salary is reckless lending and reckless borrowing.  It will lead us back to the bad old days of 20% of borrowers being in severe distress. 

Whatever the problem is, reckless borrowing is not going to fix it.

Brendan


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## LS400 (31 Aug 2021)

Here's a thought,

When I were a lad, as in buying my first house, like most starting out, I scraped the money together every month to pay my bills.

I'm now at an age where I can comfortably buy another property. I suggested here before, that I could provide a property in most parts of Dublin for €1000/month, if not subject to the horrendous tax take. If there was a threshold for example, in that everything above is subject to tax. it would smarten up a lot of people, and in my opinion regulate the letting industry, and in doing that soften up the pressure to buy at all costs.

 But, the Government would rather see the institutional guy come in and pillage the market, absolutely sickening.

Its not reckless lending if you can afford it. You have laid out many risks, but these risks were there there when I was on crap money back in the day.

Hence, the think tank that has been flipping and flopping with still be here asking the same questions in 5 years. And, in saying that, there should be scapegoats, its not working and the first time borrowers cant hang on any longer, while political careers are coasting along nicely.


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## Sarenco (31 Aug 2021)

Brendan Burgess said:


> You still face the following risks:
> 
> losing your job
> Getting married
> ...


Wouldn't you also face those risks if you were renting?


Brendan Burgess said:


> Getting stuck in negative equity and wanting to trade up


Adjusting the LTI ratio, while leaving the LTV ratio unchanged, shouldn't increase the risk of getting stuck in NE.


Brendan Burgess said:


> But even if borrowing 4.5 times your salary were not risky, it won't help. It will just push up prices.


You could equally argue that lowering the ratio to 2.5 times your salary would reduce house prices.  The only snag is that it would no longer make economic sense to build new houses so we aren't solving the core supply problem.

We are now in a position where it typically costs a lot more to rent than to service a mortgage on a similar property and I believe the CBI's mortgage rules have contributed to this situation.

FWIW, the UK's FCA has set an overall LTI limit of 4.5 times salary, with some exceptions.


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## Brendan Burgess (31 Aug 2021)

Sarenco said:


> You could equally argue that lowering the ratio to 2.5 times your salary would reduce house prices. The only snag is that it would no longer make economic sense to build new houses so we aren't solving the core supply problem.



Reducing it to 2.5 or increasing it to 4.5 does not address the problem at all.

The problem is the lack of supply, the cost of building houses and the local authorities taking a lot of the limited supply of private housing off the market for social housing.

We need to address the fundamental problems which would bring prices down.

Ideally, in time, we would bring the prices down to a level where we could reduce the maximum LTI to 2.5 times.

Brendan


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## NoRegretsCoyote (31 Aug 2021)

Sarenco said:


> FWIW, the UK's FCA has set an overall LTI limit of 4.5 times salary, with some exceptions.


Ireland is now the only EU country using LTI. Many others use debt-service-to-disposable-income as a macro-pru measure. This, sensibly, means borrowing ability changes as interest rates do.

At some point we no longer have to ape the UK....


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## Sarenco (31 Aug 2021)

Brendan Burgess said:


> We need to address the fundamental problems which would bring prices down.


I think we can agree that the fundamental problem is an insufficient supply of new properties.

However, if overly strict mortgage lending requirements are frustrating would be buyers then we are really just increasing demand in the rental market.

Again, I think the key point is that the very significant falls in mortgage rates since 2015 justifies a modest adjustment to the LTI limit.


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## Purple (31 Aug 2021)

Sarenco said:


> You could equally argue that lowering the ratio to 2.5 times your salary would reduce house prices. The only snag is that it would no longer make economic sense to build new houses so we aren't solving the core supply problem.


It would reduce the price of properties somewhat but given the net rental yields it would just drive more institutional and cash buyers into the market.


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## 24601 (31 Aug 2021)

Brendan Burgess said:


> 4.5 times a person's salary is reckless lending and reckless borrowing.  It will lead us back to the bad old days of 20% of borrowers being in severe distress.
> 
> Whatever the problem is, reckless borrowing is not going to fix it.
> 
> Brendan



Brendan, I'm just wondering if you could steer me towards any publications regarding what is the optimum maximum LTI? Have there been any international studies done that you are aware of?


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## Sarenco (31 Aug 2021)

NoRegretsCoyote said:


> Ireland is now the only EU country using LTI. Many others use debt-service-to-disposable-income as a macro-pru measure. This, sensibly, means borrowing ability changes as interest rates do.


I entirely agree with you that we should replace the LTI ratio with a (total) DTI ratio and using disposable (rather than gross) income would also be an improvement.


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## Purple (31 Aug 2021)

Sarenco said:


> I think we can agree that the fundamental problem is an insufficient supply of new properties.
> 
> However, if overly strict mortgage lending requirements are frustrating would be buyers then we are really just increasing demand in the rental market.
> 
> Again, I think the key point is that the very significant falls in mortgage rates since 2015 justifies a modest adjustment to the LTI limit.


The issue is lack of supply and the amount of that supply being hovered up by people and entities who will then rent out the property. The biggest player there is the State. They are, by far, the biggest block on first time buyers getting their first home.


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## Sarenco (31 Aug 2021)

Purple said:


> It would reduce the price of properties somewhat but given the net rental yields it would just drive more institutional and cash buyers into the market.


Perhaps but wouldn't an increase in the ratio also have the opposite effect?


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## Purple (31 Aug 2021)

Sarenco said:


> I entirely agree with you that we should replace the LTI ratio with a (total) DTI ratio and using disposable (rather than gross) income would also be an improvement.


That would negatively impact lower income purchasers. The State would then have yet another scheme to counter that and an even more dysfunctional market.


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## Purple (31 Aug 2021)

Sarenco said:


> Perhaps but wouldn't an increase in the ratio also have the opposite effect?


Yes. The opposite of this;


Purple said:


> The problem with increasing the income to lending multiple is or course that the €320k house the prospective buyer is chasing will now cost €360k or €380k, but it's not a linear increase (see below). Increasing money supply just increases prices, it doesn't increase supply. The same people will be in the same place in the queue. The only difference will be that the same person who was going to buy the house anyway will have paid more for it.
> 
> The unintended consequence of all of this is that residential property has become more attractive and affordable for the cash buyer and large investor. That and the fact that there's no return on Bonds means that capital will keep flooding into the market so in that sense the existing lending multiples disadvantage anyone who is borrowing to buy a home. Given that 40% of homes are bought for cash the knock-on effect of increasing the lending multiple won't quite result in a corresponding increase in prices.


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## time to plan (31 Aug 2021)

Brendan Burgess said:


> I did think that with interest rates lower and with 20 year rates available, well maybe it's less risky to borrow 4.5 times your income.
> 
> But that is only one risk removed.
> 
> ...


Depends how long you fix rates for...


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## Purple (31 Aug 2021)

time to plan said:


> Depends how long you fix rates for...


No it doesn't. The unexpected changes to income or outgoings effects your ability to pay the fixed amount.


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## Sarenco (31 Aug 2021)

Purple said:


> That would negatively impact lower income purchasers. The State would then have yet another scheme to counter that and an even more dysfunctional market.


Surely the progressive nature of our income tax system would mean that using disposable (rather than gross) income would proportionately benefit lower income purchasers?

Increasing the LTI/DTI ratio would also put young/lower income borrowers in a better position to compete with cash/institutional buyers.


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## skrooge (31 Aug 2021)

I think the one thing we can agree on (maybe) is that there is a supply issue.

How do we address it? We currently subsidise FTB's to try and purchase these properties, I find this a little strange. Ftbs are generally the poorest part of the property ladder. Why not use the property ladder to our advantage rather than spending a fortune trying to bypass it.  Surely we should be building new houses that the existing owners want to trade up to. Let ftbs buy the properties these existing owners move out of. Is this not a more sustainable?

For it to work it might  mean changing our incentive structure and possibly taxation but it's how the market use to work. Rather than a subsidy for ftbs just do away with/reduce stamp duty on new property. It becomes equally attractive to all then. I can't imagine this would be as costly to the government as their current FTB grant

The above probably won't happen but I don't think it's that crazy a thought. 

As for the mortgage measures I think they could be more targeted. A wealthy household does not need a boost. But a 20% deposit does stop some people moving. 

To encourage builders to build  we probably need to boost lower income households purchasing capacity. Effectively raise the floor on property market. I don't see the need to raise the roof. This suggests some kind of sliding scale. Targeting a disposable income figure might address this. Or you can borrow X times the first part of your income but less against the balance.

If 3.5 times isn't sufficient to increase supply what would be? Secondly how prudent would that figure be? There is always a trade-off between prudence and helping the economy (in the short term at least)


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## Brendan Burgess (31 Aug 2021)

24601 said:


> Brendan, I'm just wondering if you could steer me towards any publications regarding what is the optimum maximum LTI? Have there been any international studies done that you are aware of?



The only study I know of is the Irish property crash where there were no LTI or LTV limits and about 200,000 people got into mortgage difficulty. 

When I bought my first house, the limit was 2.5 times salary but interest rates were higher than they are now. I still think that 2.5 is about right for the long term if we had demand and supply in balance.

Brendan


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## time to plan (31 Aug 2021)

Purple said:


> No it doesn't. The unexpected changes to income or outgoings effects your ability to pay the fixed amount.


There are multiple factors at play.


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## Purple (1 Sep 2021)

Sarenco said:


> Surely the progressive nature of our income tax system would mean that using disposable (rather than gross) income would proportionately benefit lower income purchasers?


Given that utilities, groceries, car insurance, school uniforms and book, car service and tyres etc are around the same for a household with an income of €60k as for a household with an income of €300K the net disposable income of the latter household will be far greater, even taking income tax into account.

Unexpected costs will probably swallow a larger chunk of the lower income households net income.


Sarenco said:


> Increasing the LTI/DTI ratio would also put young/lower income borrowers in a better position to compete with cash/institutional buyers.


I agree with you there but much higher rates of stamp duty for non residential buyers would have the same result without the risk for the buyer.


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## time to plan (1 Sep 2021)

Another way of looking at this is somebody's ability to pay rent. If I've paid rent of €1500 per month on time each month for 2 years, and I have a permanent job, I can probably manage to pay a mortgage of €1000 per month, particularly if I have a long-term fixed rate.


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## Brendan Burgess (1 Sep 2021)

That is the great quandary. It is actually cheaper to pay a mortgage than to rent a similar property.

But if you lend everyone more money, it doesn't help. It just pushes up the prices.

We have to focus on the real problems which are the lack of houses available for first time buyers and their high prices because it's expensive to build them and because investors are buying them to rent for social housing. 

Brendan


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## Sarenco (1 Sep 2021)

Purple said:


> Given that utilities, groceries, car insurance, school uniforms and book, car service and tyres etc are around the same


Net disposable income is simply what's left when all taxes have been deducted.  Perhaps you are thinking of discretionary income?

If the ratio was calculated off disposable, rather than gross, income it would benefit lower earners.


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## time to plan (1 Sep 2021)

Brendan Burgess said:


> That is the great quandary. It is actually cheaper to pay a mortgage than to rent a similar property.
> 
> But if you lend everyone more money, it doesn't help. It just pushes up the prices.
> 
> ...


You describe it well. I understand that lending more drives up prices, but using lending criteria as a long-term tool to keep prices down has the effect of trapping people paying rent to make up for a policy failure in supply, in my opinion. It transfers money from poorer people to richer people / investment vehicles - no wonder the landlord TDs love it.

It also builds a problem for the state for the future as more people will be retiring having to pay rent, and fewer people will have an asset to liquidate to pay for long-term care (whatever you think of the rights and wrongs of it).

Deal with the supply problem properly, and then if someone can pay rent, then they can pay a mortgage.


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## NoRegretsCoyote (1 Sep 2021)

Sarenco said:


> If the ratio was calculated off disposable, rather than gross, income it would benefit lower earners.


At the moment you can plug in numbers that show a low-income household will only be able to get a mortgage resulting in payments of 23% of its _net_ income.

That's far below a prudent limit which I would put somewhere in the 30% -35% range. Lots of these households already pay as much in rent.


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## odyssey06 (1 Sep 2021)

NoRegretsCoyote said:


> At the moment you can plug in numbers that show a low-income household will only be able to get a mortgage resulting in payments of 23% of its _net_ income.
> 
> That's far below a prudent limit which I would put somewhere in the 30% -35% range. Lots of these households already pay as much in rent.


There are additional expenses with ownership of a property you don't have renting - maintenance, insurance, tax, service charges in some estates & apartments. Hard to put an exact % on it but if can afford the rent but you are at your limit - you can't afford it as owner.


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## LS400 (1 Sep 2021)

There is not the space left in Dublin to satisfy the building of units with the requirements of:

First timers getting on the ladder,
Investors with cash on deposit sitting in Accounts 
And, the Institutional LLs Hovering Machine.

A Government policy could fix this with a substantial tax disincentive on second property purchases`s for the next 5 years.  This will even up the playing field to some extent.

I say Dublin, because the fall out from Dublin, affects the next border towns.


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## time to plan (1 Sep 2021)

When I lived in the UK, there was an Irish report from the '60s or '70s (?) (damned if I can remember what it's called) that was often referenced. It had never been implemented. If I remember it correctly, the upshot was:

Rather than a system where landowners and developers make huge profits of land by gaining planning permission, the planning authorities hold a reverse auction for land without planning permission and then when the state owns it, it grants planning permission. E.g. Fingal County Council or An Bord Pleanála decides to build 200 houses and associated infrastructure, retail etc. around Rusk & Lusk train station, and invites bids to sell on a specification.

Then when the land is bought, private developers can build and the houses can be sold, and the profit that the state / council makes can be ploughed into further land purchases or social housing. There are other models as well where the council / state keeps an interest in the land ownership but not the building.

Lots of ways it could work, but what the principle does is to stop huge transfers of wealth from house buyers to landowners via the act of granting planning permission. Personally I would just compulsory purchase the land at fair market value + a premium, and change the constitution via a referendum if needs be, but that's just me.


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## The Horseman (1 Sep 2021)

time to plan said:


> You describe it well. I understand that lending more drives up prices, but using lending criteria as a long-term tool to keep prices down has the effect of trapping people paying rent to make up for a policy failure in supply, in my opinion. It transfers money from poorer people to richer people / investment vehicles - no wonder the landlord TDs love it.
> 
> It also builds a problem for the state for the future as more people will be retiring having to pay rent, and fewer people will have an asset to liquidate to pay for long-term care (whatever you think of the rights and wrongs of it).
> 
> Deal with the supply problem properly, and then if someone can pay rent, then they can pay a mortgage.


Lending does not drive up prices rather lack of supply does. The role of the central back is to ensure that banks are lending prudently. It is up to us as individuals or the State were appropriate to house people. 

We have this concept that construction prices are ever increasing be it raw material prices, labour shortages etc. On the one hand we want properties built but we don't want to pay the costs associated. Suppliers of raw materials and labour will go where they can get the best price (this is simple economics). 

We as a society need to take some big decisions as to how to "square the circle". Everybody can't live where they want to unless they are willing to pay for it in some way either financially or in smaller sized properties.  

Alot of people keep referring to the European model of renting for life. How do they deal with the requirement to rent in retirement? How do they fund medical care (their equivalent of the Fair Deal scheme)


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## Sarenco (1 Sep 2021)

NoRegretsCoyote said:


> At the moment you can plug in numbers that show a low-income household will only be able to get a mortgage resulting in payments of 23% of its _net_ income.
> 
> That's far below a prudent limit which I would put somewhere in the 30% -35% range.


Exactly.

The LTI limit of 3.5 times gross income was probably about right back in 2015 when the measures were originally introduced.  But mortgage rates have fallen by at least 25% since 2015 so the limit is now overly restrictive and should be modestly increased to reflect a more appropriate level of affordability for borrowers.

Inappropriately limiting access to mortgage finance will to continue to put increased pressure on the rental market - people have to live somewhere.  Rising rents will limit the ability of would be buyers to save and will incentivise more institutional/cash buyers to enter the market.

Last year approximately 40% by value of residential property purchases were by institutional/cash buyers (it's normally around half that level). That indicates a dysfunctional market as increasing numbers of potential owner occupiers are getting caught in a "rent trap".


Brendan Burgess said:


> We have to focus on the real problems which are the lack of houses available for first time buyers and their high prices


I think that's framing the issue too narrowly.  In my opinion, our problem is a lack of supply of new housing - full stop.  

A modest relaxation of the mortgage limits should prompt a supply response so it is not necessarily the case that prices will rise.  Or at least rise to a corresponding degree.


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## NoRegretsCoyote (1 Sep 2021)

odyssey06 said:


> There are additional expenses with ownership of a property you don't have renting - maintenance, insurance, tax, service charges in some estates & apartments.


Also the pleasure of paying off your own capital and not your landlord's!




Sarenco said:


> But mortgage rates have fallen by at least 25% since 2015 so the limit is now overly restrictive and should be modestly increased to reflect a more appropriate level of affordability for borrowers.


A lot of people think act like 3.5 was handed down by God in the Sinai desert and written on stone tablets and not, in fact, haggled over by a committee of humans down the docklands in December 2014


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## time to plan (1 Sep 2021)

The Horseman said:


> Lending does not drive up prices rather lack of supply does. The role of the central back is to ensure that banks are lending prudently. It is up to us as individuals or the State were appropriate to house people.
> 
> We have this concept that construction prices are ever increasing be it raw material prices, labour shortages etc. On the one hand we want properties built but we don't want to pay the costs associated. Suppliers of raw materials and labour will go where they can get the best price (this is simple economics).
> 
> ...


Lending AND lack of supply drive prices up.

If mortgages were banned (no lending), all other things being equal, prices would decrease.
If people would be allowed to borrow many time more than they can now, there would be more money chasing the same supply and, all other things being equal, prices would increase.


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## NoRegretsCoyote (1 Sep 2021)

time to plan said:


> If mortgages were banned (no lending), all other things being equal, prices would decrease.


If mortgages were banned all house purchase would be funded from savings and inheritances, and you would have very little new build.

Supply and demand are like two blades of a scissors. You need both to cut the paper. Right now the demand blade is sharp and the supply blade is blunt. Sharpening the demand blade a bit more will still cut the paper better even if the supply blade is still blunt. Best of all would be to sharpen both, but it's not an either/or.


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## The Horseman (1 Sep 2021)

time to plan said:


> Lending AND lack of supply drive prices up.
> 
> If mortgages were banned (no lending), all other things being equal, prices would decrease.
> If people would be allowed to borrow many time more than they can now, there would be more money chasing the same supply and, all other things being equal, prices would increase.


Supply (or lack thereof) is whats driving up prices. As supply increases price falls until equilibrium is reached. Supply is not the responsibility of the Central bank income multiples. 

If mortgages were banned than prices would not decrease, supply would, otherwise why would a developer build if he can't sell. 

Demand is outstripping supply because of scarce resources. We don't have the same numbers in construction and the associated businesses to meet demand. As such price for scarce resources increases and these increases have to be paid for. 

The key is how do you increase supply in the short to medium term to meet and even exceed demand in the long term if you want to keep a check on prices as competition will automatically do this. 

Whether people like it or not we will have to pay to encourage an increase in supply certainly in the short term.


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## Purple (1 Sep 2021)

Sarenco said:


> Net disposable income is simply what's left when all taxes have been deducted.  Perhaps you are thinking of discretionary income?
> 
> If the ratio was calculated off disposable, rather than gross, income it would benefit lower earners.


Sure, I'm talking about the ability to service the loan if unexpected expenses occur. 
You can calculate the amount someone can borrow using any criteria you like but things happen that screw up the best laid plans and those things are more likely to cause people on low incomes to be unable to pay their mortgage.


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## Purple (1 Sep 2021)

Sarenco said:


> Inappropriately limiting access to mortgage finance will to continue to put increased pressure on the rental market - people have to live somewhere. Rising rents will limit the ability of would be buyers to save and will incentivise more institutional/cash buyers to enter the market.
> 
> Last year approximately 40% by value of residential property purchases were by institutional/cash buyers (it's normally around half that level). That indicates a dysfunctional market as increasing numbers of potential owner occupiers are getting caught in a "rent trap".


Rather than increasing the mortgage rates to allow those buyers to compete with cash buyers, who are almost always investment buyers, why not introduce a 15% stamp duty on all property purchases where the purchaser is not an owner occupier.

Since the majority of institutional buyers are buying the properties in order to rent them to the State for social housing the State is the biggest actor excluding first time buyers from the market and attracting cash buyers into the market. That has to be fixed too.


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## Sarenco (1 Sep 2021)

Purple said:


> You can calculate the amount someone can borrow using any criteria you like but things happen that screw up the best laid plans and those things are more likely to cause people on low incomes to be unable to pay their mortgage.


Indeed but you originally argued that using net disposable, as opposed to gross, income would negatively impact lower income purchasers, which I would suggest is untrue.


Purple said:


> Rather than increasing the mortgage rates to allow those buyers to compete with cash buyers, who are almost always investment buyers, why not introduce a 15% stamp duty on all property purchases where the purchaser is not an owner occupier.


Because we need to increase the supply of properties of all tenure types - including rental properties.

Incidentally, it's not true that cash buyers are "almost always" investment buyers.  Plenty of cash buyers are simply moving from one part of the country to another, downsizers, etc.


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## Purple (1 Sep 2021)

Sarenco said:


> Indeed but you originally argued that using net disposable, as opposed to gross, income would negatively impact lower income purchasers, which I would suggest is untrue.


Right so.


Sarenco said:


> Because we need to increase the supply of properties of all tenure types - including rental properties.


Yes, but there is more than enough demand for the properties currently on the market. Lack of demand is not the reason that there are supply constraints. 


Sarenco said:


> Incidentally, it's not true that cash buyers are "almost always" investment buyers.  Plenty of cash buyers are simply moving from one part of the country to another, downsizers, etc.


Plenty are but most aren't. I'd say that most cash buyers who will live in the property are selling another property, though I've nothing to back that up so I'm open to correction.


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## Sarenco (1 Sep 2021)

Purple said:


> Lack of demand is not the reason that there are supply constraints.


Well, if you apply punitive rates of stamp duty to rental properties, then the demand for that property type (which we need) would fall off considerably.

Also, bear in mind that demand refers to the willingness *and ability* of consumers to buy something at a particular price.  If sufficient numbers of would be buyers cannot raise sufficient finance to purchase properties at a price that is attractive to developers, then the supply of those properties will necessarily suffer.


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## Purple (1 Sep 2021)

Sarenco said:


> Well, if you apply punitive rates of stamp duty to rental properties, then the demand for that property type (which we need) would fall off considerably.


Possibly, or the price would drop a bit and more people could buy them rather than having to rent them.
If the lending limits increased it would cause an increase in prices which would reduce the returns/yields for cash buyers and have the same effect but the buyer would have a bigger mortgage. 


Sarenco said:


> Also, bear in mind that demand refers to the willingness *and ability* of consumers to buy something at a particular price.  If sufficient numbers of would be buyers cannot raise sufficient finance to purchase properties at a price that is attractive to developers, then the supply of those properties will necessarily suffer.


There are gross inefficiencies in the housing supply sector, from financing, planning, land usage to the way construction is done. Increasing the amount that people can borrow in order to price in all of those inefficiencies is, in my opinion, a worse option than actually fixing a dysfunctional system. We can't run everything like we run the HSE; sure just throw money at it and it'll be fine.


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## Sarenco (1 Sep 2021)

Purple said:


> Possibly, or the price would drop a bit and more people could buy them rather than having to rent them


But what would happen to rents?  It's important to look at the market as a whole - we need more rental properties *and* more owner occupier properties.


Purple said:


> There are gross inefficiencies in the housing supply sector, from financing, planning, land usage to the way construction is done


Agreed.  

But we are just debating whether the LTI limit should be tweaked so that it more accurately reflects the envisaged affordability criteria when it was originally determined, taking account of the significant drop in mortgage rates in the meantime.

IMO the current LTI limit has become too restrictive and is itself contributing to a dysfunctional market.


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## Brendan Burgess (1 Sep 2021)

You can listen back to the debate on the Pat Kenny Show here: 









						Could Allowing Homebuyers Borrow More Money Prove A Solution To The Housing Crisis? | Newstalk
					

Could allowing homebuyers borrow more money prove a solution to the housing crisis? To debate,...




					www.newstalk.com


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## Brendan Burgess (19 Sep 2021)

Avant has called on the Loan to Income rules to be relaxed.









						Middle-income earners ‘challenged’ by mortgage lending ratios
					

Avant Money, one of the country’s newest mortgage providers, has said current rules on loan-to-income ratios are a challenge for middle-income earners and that lenders should be able to take rental payments into account when assessing borrowers.




					www.independent.ie
				




_Lande said he believed house prices were rising due to a lack of supply, not the CBI rules on mortgages.

“There is huge demand. A lot of people have built up their savings and deposits during the lockdown. There are a lot of very well-paid people in the Dublin market... Too many people are chasing too few houses.”_

I don't follow that argument.

It may be that the journalist misquoted him. 

There is enough money around to buy the available houses.  Putting more money into the market will just increase prices. 

Brendan


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## NoRegretsCoyote (20 Sep 2021)

From the CEO of Cairn Homes:



> The letter gives an example of a household on a gross income of €75,000 in 2015, which would have qualified for a mortgage of €265,500 based on the 3½ loan-to-income (LTI) cap. This would have equated to monthly payments of €1,237 – or 25 per cent of net monthly income – based on an average mortgage rate of 3.89 per cent in the market at the time.
> 
> *However, a reduction in average mortgage rates since then, to 2.79 per cent, has reduced the payments to about 21 per cent of net monthly income.*
> 
> ...



This point has been made on this forum a few times. Good to see it getting more airtime.


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