Central Bank wants your views on the mortgage lending limits

[Sarenco]

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.

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.

 

[Purple]

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.

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.

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.

 

[Sarenco]

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.

 

[Purple]

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.

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.

 

[Sarenco]

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.

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.

 

[Brendan Burgess]

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

 

[Brendan Burgess]

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

 

[NoRegretsCoyote]

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.

If the debt-servicing ratio remained at 25 per cent, however, it would have allowed the maximum loan for the same borrower to rise to €312,407, allowing the borrower to buy a house worth €347,119, based on the Central Bank’s 90 per cent loan-to-value limit for most first-time buyers.

“A recent report by the [Residential Tenancies Board for 2020] found that on average renters are paying 36 per cent of their net monthly income in rent, with a significant cohort of renters paying up to 50 per cent,” Mr Stanley noted, adding that was making it “extremely difficult for people to save for a new home or contribute to a pension.”

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