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.
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.
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.
* 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.
*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
*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.
*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.
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.
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.
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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.
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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.