Central Bank to impose limits on mortgage lending?

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Brendan Burgess

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According to Bloomberg and the Irish Times, the Central Bank is about to publish a consultation paper on this issue.

Banks and lobby groups will have a chance to comment on the plans, which center on introducing loan-to-value and loan-to-income restrictions.
 
Hard to know what is right here.

In theory, the market should be left alone to sort this out. But it did not work the last time. If one bank starts lending recklessly, the rest are obliged to follow to maintain market share.

If they all lend recklessly, then it causes a credit induced bubble.

But should the CB simply restrict the amount of credit any lender can provide and then leave it to the lender to decide what criteria they use?

Most of the time, the interest on a 100% mortgage on a house, is cheaper than the rent on that house. So for an individual buyer, a 100% mortgage can make sense. But a 100% mortgage is more risky for the lender than for the borrower.

If this is restricted to, say 80%, a lot of people won't be able to buy and so will have to continue to rent. Of course, those who do have the deposit, will pay less for their houses, because there will be less competition.

And what should the maximum loan to income ratio be? 4 times combined income? 3 times combined income if they have children?

Again, that would just force many people to pay more for rent than they would pay in mortgage interest.
 
The 3:1 ratio is a fairly safe ratio. Greater than that is not as safe. That's just my opinion of course.
 
The 3:1 ratio is a fairly safe ratio. Greater than that is not as safe. That's just my opinion of course.

Central Bank are a toothless bunch. They must assert themselves and take control and regulate. No point in engaging in consultations etc while the horse is bolting. They will walk us into it again just wait and see. They need to act and be seen to act.
 
There was an article on this, probably in the Sindo a couple of months ago, and I'm nearly sure I posted it on here.

I think the CB should impose prudent lending. That is a couple of things to me, a wages to loan ratio that is reasonable, a minimum deposit, I'd suggest 10%, demonstrates therefore a saving capacity, and nothing like having some of your own money involved to understand the seriousness of what you are doing. And a stress test on the interst rates. I'd suggest 3%.

Deposits should come from saving over a period of time, not a present from the parents, ie a loan from the Credit union.

I also think that all borrowing should be looked at at the application stage.

And a reasonableness approach, if they are paying rent at 1K per month, then they are able for a mortgage that costs 1K per month.

I'd also suggest that there should be guidelines on parents going guarantors on the mortgages, from both the parents and the child's point of view.

You'd think surely the CB would have all the experts and rules on this already in place.
 
Bronte

Most of what you are saying is already in place.

  1. Most lenders look for 10% deposit.
  2. All interest rates are stress tested at +2%
  3. Underwriters look for savings. Getting the deposit from parents and showing no signs of savings won't impress and underwriter. They want to see that you are able to make repayments.
  4. All other loans are looked at too.
  5. You must demonstrate an ability to repayment the stress tested amount. This has to be shown through current rent, saving, paying off loans (if you pay it off early, make sure you save the money)
  6. Guarantors are not accepted anymore.

The problem now is that the demand is so much higher than supply and people can't save quick enough to get the deposit. This has lead to another housing bubble, in Dublin anyway.

I am also coming across a lot of cases where one of a couple has got into financial difficulty in the past and it is recorded in their ICB record. Even though they have got themselves back on an even keel, the banks won't look at them.

It is incredibly difficult to get a mortgage these days.

Steven
www.bluewaterfp.ie
 
...as for Central Bank imposing limits, we know that the banks will do whatever leads them to making the most profit. They cannot be expected to do what is correct over what makes them money, so yes, they need to be limited in what they can lend. Too many people have had their lives ruined by taking on too much debt. I know there is personal responsibility here too but people lose their senses when they get caught up in the excitement of getting a new home and a new beginning for their family.



Steven
www.bluewaterfp.ie
 
Central Bank report here

[broken link removed]


RTE article
Central Bank says limits on mortgages should be considered

http://www.rte.ie/news/2014/1001/649371-house-loans/

The Central Bank has said formal limits should be considered on the amount of money people can borrow to buy houses.


In a research note, Central Bank economists say banks should not lend more than 80% of the value of a property, and that borrowers should not get a mortgage of more than four times their income.


This would makes both banks and households more resilient in market downturns, according to the research.
 
Central Bank are a toothless bunch. They must assert themselves and take control and regulate. No point in engaging in consultations etc while the horse is bolting. They will walk us into it again just wait and see. They need to act and be seen to act.
.................................

View Central Bank by their inaction through the (fluffy) times.
They will present and re-present and huff and puff.

They cannot be trusted.
 
How do you deal with buy-to-let investors in post Bacon world, albeit in 1998.


If we make it harder for buy-to-live to buy, then as noted earlier rents will go up, playing into the investors hands and further driving out the buy-to-live group
 
In theory, the market should be left alone .

Every market is created by law and custom. Without law there would be be no market.

Good law creates a stable market and allows the participants to make decisions based on their own interests, knowing that the law will support them in their lawful activities.

Law shapes markets. The fact that law enforces contracts allows markets to function.

Law prevents harmful products being sold to the public. It is clear that the law on property lending allowed harmful mortgage products to be sold in Ireland in the past.

Drafting good law to prevent this is not easy. The requirement to limit loan to value ratios (i.e. to require the buyer to have a deposit) seems sensible.

If this is introduced the important point is that it not be changed in a pro cyclical manner when affordability becomes streched in the future. That would be bad law.
 
Bronte

Most of what you are saying is already in place.

  1. Most lenders look for 10% deposit.
  2. All interest rates are stress tested at +2%
  3. Underwriters look for savings. Getting the deposit from parents and showing no signs of savings won't impress and underwriter. They want to see that you are able to make repayments.
  4. All other loans are looked at too.
  5. You must demonstrate an ability to repayment the stress tested amount. This has to be shown through current rent, saving, paying off loans (if you pay it off early, make sure you save the money)
  6. Guarantors are not accepted anymore.

The problem now is that the demand is so much higher than supply and people can't save quick enough to get the deposit. This has lead to another housing bubble, in Dublin anyway.

I am also coming across a lot of cases where one of a couple has got into financial difficulty in the past and it is recorded in their ICB record. Even though they have got themselves back on an even keel, the banks won't look at them.

It is incredibly difficult to get a mortgage these days.

Steven
www.bluewaterfp.ie

Without legal effect the banks will change all these things, not when prices are falling, when there might be some sense to it but in a pro-cyclic fashion when prices are rising.
 
It is interesting to consider what effect a limit on loan to value ratios and a limit on loan to income rations would have on the property market.

With a loan to income ratio of 4. Someone earning €50,000 could borrow €200,000 plus a 20% deposit gives a purchase price of €250,000.

It seems to me that this would put a severe downward pressure on house prices in the €400,000 plus bracket. It would probably put upward pressure on houses with prices below average at present.
 
Downward pressure on 400000 loans and visa versa with lower level loans mightn't be a bad thing.
It's beginning to look like a speculators market again in Dublin.
 
Boomtown Rats

I wonder has Dublin always been a boom and bust city?
Is that the reasoning behind the Boomtown Rats name?
 
How do you deal with buy-to-let investors in post Bacon world, albeit in 1998.


If we make it harder for buy-to-live to buy, then as noted earlier rents will go up, playing into the investors hands and further driving out the buy-to-live group


You do realise the government implemented Bacon and it was a total disaster. So bad that it was reversed within 3 years (maybe it was 2, I can't remember, but it totally drove the market bananas, and nobody could buy anything)

When you drive investors out of the market you know what happens, rents sky rocket.

This government has brought about this crisis, by the following:

a) reducing interest relief for investors to 75%
b) increasing tax via USP and PRSI on rent
c) not allowing NPPR and LPT as a legitimate cost, even though it is
d) making investors fearful that they might further decrease the 75%

e) aboishing bedsits, the timing was atrocious
f) not planning for the housing need, they have after all the numbers at their fingertips
g) not sorting out planning and speedy delivery of same
h) not getting Nama to release more housing
i) not getting Nama to get builders to build again, they have a fund for this, to complete developments I believe
j) not sorting out this bankruptcy mess that is hanging over every second post on AAM

Banks are also responsible

k) not dealing with insolvency in a quick and efficient manner
l) lettting people stay in houses for many years with no payments or reduced payments with no reality and not just writing off debt or getting people out of the properties if necessary
 
Back in the 90's we restricted loans to 90% of purchase price and based on 2.5 main salary + .5 second salary. Some guaranteed overtime or shift allowances might have been taken in to consideration plus future prospects in a person's job. We initially only lent 75% if a person was purchasing an apartment.

There was almost a board meeting if someone wanted to get more than the 90% and if someone wanted more than 75% for an apartment it had to be located in a very upmarket and desirable area.

It worked fine until the other financial institution decided to offer more which in turn forced the company that I worked for to begin offering more or go out of business which in turn.....the rest is history.

I think 90% loans are fine with a multiple of salary taken in to consideration.
 
It's a bit odd that we are discussing restrictions on LTVs while allowing negative equity mortgages

If we agree that the maximum LTV should be, say 80%, then those who are currently in negative equity should be told to pay down their mortgages to 80% before being allowed to trade up to 80% LTV.

For the borrower, the key issues is affordability.

For the lender, a low LTV is as important as affordability.

Brendan
 
Briefing: Consultation Paper on Macro-prudential policy for residential mortgage lending

You are invited to attend a briefing on the Central Bank’s Consultation Paper Macro-prudential policy for residential mortgage lending.

The briefing will be hosted by Cyril Roux, Deputy Governor Financial Regulation and Stefan Gerlach, Deputy Governor Central Banking.

Date
Tuesday 7 October 2014
Time
11:30 am
Venue
Central Bank of Ireland, Dame Street


Please RSVP if you are would like to attend. Space is limited so only one representative from each outlet can be accommodated.

Kind regards,

Press Office
Central Bank of Ireland
([FONT=&quot] [/FONT] +353 (0)1 224 6299
* [email protected]
 
I wonder has Dublin always been a boom and bust city?
Is that the reasoning behind the Boomtown Rats name?

Er no.

The Boomtown Rats were named after a gang of children that Geldof had read about in Woody Guthrie's autobiography, Bound for Glory.
 
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