# Parental income to prop up house market?



## oysterman (5 Jun 2006)

We all know that first-time buyers prop up the housing market since they provide the equity for the trader-uppers and so on up the ladder.

So the bubble can't survive without finding a succession of new ways to give the precious FTBs more purchasing power - the erosion of income multiple criteria for lending with the introduction of that great term "affordability", followed by 100% loans, did the trick in recent years.

But here's a great new wheeze from across the water - not just allowing parents to go guarantor (the 'problem' with that is that it doesn't raise the amount that can be borrowed which is the critical element in pouring more money into the housing market to keep the whole ship afloat) but actually allowing parental income to be taken into account in deciding on the amount to be advanced. Have a look at the following article: and note particularly the bit about the Bank of Ireland First Start product which will lend once the applicant's income plus four times the parents' income, up to 100% of the purchase price.

What a storming product! The housing market is safe......forever!


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## whizzbang (6 Jun 2006)

This is fantastic, perhaps you can next get a mortgages by signing up 5 of your friends for a mortgage, then they get theirs when they sign up 5 of their friends and so on! It can't fail.. on an unassociated note, I'm off to Cork for a...erm, "community meeting". *runs to car*


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## Duplex (6 Jun 2006)

What happens next? Well look to further than the US where 40% of homes were bought by speculators last year. 



http://www.forbes.com/free_forbes/2006/0619/168.html?partner=yahoomag


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## whizzbang (6 Jun 2006)

what makes a speculator? someone who buys because they think prices are going to continue to rise? Where does that leave Ireland? 90% Speculators?


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## Purple (6 Jun 2006)

Next they will take the value of one of your kidneys and one of your lungs into account...


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## whizzbang (6 Jun 2006)

Purple said:
			
		

> Next they will take the value of one of your kidneys and one of your lungs into account...



How about your fertility level, you could offset mortgage risk against ability to concieve and later sell babies? I hear there is an excellent in market in babies.


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## Eurofan (6 Jun 2006)

whizzbang said:
			
		

> what makes a speculator? someone who buys because they think prices are going to continue to rise? Where does that leave Ireland? 90% Speculators?



Ah now that's probably a tad conservative!


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## whizzbang (7 Jun 2006)

Eurofan said:
			
		

> Ah now that's probably a tad conservative!


we all know 86.5% of statistics are made up on the spot 

still, it would be interesting to see what our "Speculator rate" is!.


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## funky girl (7 Jul 2006)

Talk about pressure, as a parent i cant see myself funding my kids mortgages, after struggling for years to pay for them plus my own debts. Personally i see a lot of spoilt 20 somethings enjoying designer labels, hols and nights out and then complaining about not being able to get on the property ladder!! Whats wrong with saving and renting first??


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## whizzbang (8 Jul 2006)

funky girl said:
			
		

> Whats wrong with saving and renting first??



Absolutley nothing! and a lot of 20 somethings I know are doing just this!


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## Sunnyboy (8 Jul 2006)

funky girl said:
			
		

> Whats wrong with saving and renting first??


 

For at least the past 10 years house prices have been rising faster than a normal person could save. 

As for designer labels, hols and nights out totally agree with you there.


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## Calina (8 Jul 2006)

Sunnyboy said:
			
		

> For at least the past 10 years house prices have been rising faster than a normal person could save.
> 
> As for designer labels, hols and nights out totally agree with you there.



had a 20 year old flatmate for a while and nearly died of a heart attack when he told me an average night out cost 100E which represented what I lived on for a week at the time. Because I don't often go out, or if I do it's to odd little concerts or the cinema, I just hadn't known this. 

One of the mortgage advisors I spoke to over the years told me that parents always helped the kids out with unofficial loans and deposits, that it was nothing new per se...I'm allergic to multigenerational loans though...obviously I'm wrong to say something like this, but I think you're getting into loan sharkery territory there.


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## Persius (10 Jul 2006)

From the Forbes article
"The speculative housing craze is crashing from its own excesses, not Federal Reserve action. Mortgage payments still are low, and lenders remain accommodative. Since the Fed started to tighten in June 2004, 30-year fixed mortgage rates first dipped from 6.3% to 5.6% in June 2005 and now sit at 6.5%."

How can the american banks offer 30 yr fixed morgages at essentially 1.25% higher than the Fed rate? Whereas here your standard tracker rate is ECB + 1.25%. Do the american banks really think that the interest rates aren't going to get significantly higher over the next 30 years?


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## room305 (10 Jul 2006)

Persius said:
			
		

> Do the american banks really think that the interest rates aren't going to get significantly higher over the next 30 years?



The Feds are raising the short term interest rate. They do not directly control the long term rate although they can influence it. Presumably the banks think the Fed will stop raising at some point (maybe when they cause recession) and start lowering, so over 30 years it will average itself out in their favour.


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## lff12 (11 Jul 2006)

I remember wealthy parents buying apartments etc for the kids back as far as the late 1980s. Its nothing new. Whats different now is that a lot of people on very low incomes (e.g. state pensions and low paid jobs) may be sitting on large levels of equity in their own homes.

What is also different is that a lot of amateur investors got burned in eircom, the dot com bubble and again now with equity SSIAs (though in fact equity SSIAs have still overshot cash only plans).  A lot of people are afraid of getting burned on the equity market and so turn to property as a get-rich-quicker "surefire" investment.  And for many its worked.  Its also a lot more tax friendly thanks to our developer/builder/property buyer loving government.


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## gearoidmm (11 Jul 2006)

Persius said:
			
		

> From the Forbes article
> "The speculative housing craze is crashing from its own excesses, not Federal Reserve action. Mortgage payments still are low, and lenders remain accommodative. Since the Fed started to tighten in June 2004, 30-year fixed mortgage rates first dipped from 6.3% to 5.6% in June 2005 and now sit at 6.5%."
> 
> How can the american banks offer 30 yr fixed morgages at essentially 1.25% higher than the Fed rate? Whereas here your standard tracker rate is ECB + 1.25%. Do the american banks really think that the interest rates aren't going to get significantly higher over the next 30 years?



Long term interest rates in the US are based on the price of bonds which are very low at the moment, largely because of large scale buying of US demoninated treasuries by the Japanese and Chinese governments thus financing the enormous US current account deficit and propping up the dollar.

One of the biggest threats to the world economy at the moment is this huge deficit (currently 6.9% of GNP) which, if foreigners were behaving rationally, should be causing a precipitous decline in the dollar


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## bearishbull (11 Jul 2006)

gearoidmm said:
			
		

> Long term interest rates in the US are based on the price of bonds which are very low at the moment, largely because of large scale buying of US demoninated treasuries by the Japanese and Chinese governments thus financing the enormous US current account deficit and propping up the dollar.
> 
> One of the biggest threats to the world economy at the moment is this huge deficit (currently 6.9% of GNP) which, if foreigners were behaving rationally, should be causing a precipitous decline in the dollar


yeah the mortgage lenders can lend at fixed rates for length of mortgage and protect themselves from federal reserve rate rises by buying interest rate derivatives and by securitising the debt and selling it on the markets. as someone posted elsewhere you can get a 20 year fixed in belgium, im suprised theres no long term fixed rate in the market here ,but they would be more expensive but you'd have more certainty and know you'll never pay more than the rate at the start of your mortgage.


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