Time to change CBI affordability rules?

[Brendan Burgess]

However, now that the consumer credit register is up and running, I think it would make sense to replace the LTI limit with a broader debt-to-income (DTI) limit of 4 or even 4.5 (the DTI ceiling in the UK).

I can't remember at the time why they rejected the DTI approach. Maybe it was the lack of a credit register.

I would agree with that, but I would keep the DTI at 3.5

Irish borrowers are very vulnerable to the Irish banks' predatory approach to mortgage rates. They are between 1% and 2% higher than the rest of the eurozone. They face no pressure from the government, the regulator or from foreign competition to reduce them. So if they decide to increase them by a further 1% independently of the ECB then there isn't anything stopping them.

If the banks removed the vulnerability by introducing 20 year fixed rates of 1.8% , then they could raise the LTI.

Brendan

 

[Brendan Burgess]

It [throwing more borrowed money at houses] might, actually, if it triggers the development of more new homes and takes pressure off the rental market.

Throwing more borrowed money at houses will increase the price of houses.
So it won't make it much easier for would be purchasers to get on the housing ladder.

Of course, increasing house prices would lead to increased profitability for developers so they would increase their output, by a small amount eventually.

However, it should not be the Central Bank's role to do this.

The government can increase the profitability and bring down the price of houses by the following

1. Abolish VAT on new houses
2. Abolish development levies
3. Abolish social housing levies

The government should also stop buying and building social housing in cities. They are pushing up the prices and squeezing private buyers out of Dublin so that these buyers end up with long commutes. Build social housing outside Dublin where the state could buy or build two or three houses for the price of one in Dublin. Why should workers who pay for their own houses have to commute while those who get social housing, many of whom are not working, demand to be housed in their own community?

Brendan

 

[Brendan Burgess]

I'd be curious to see what impact this would have on prices. An LTI increase from 3.5 to 4 would be dampened by the LTV requirement.

For example:

if you borrow 3.5* income you need 0.39* income to meet the 10% deposit requirement.

4*income implies you need .44* income to meet the 10%. Saving the additional 5% may be challenging in the current rental market.

Hi Skrooge
Interesting point. I have put some numbers on this to illustrate it.

	Current rules LTI 3.5	change LTI to 4 but leave LTV at 90%
House price	€300k	€300k
Deposit required	€30k	€30k
Loan required	€270k	€270k
Salary required at 3.5	€77k	€67.5
Deposit as % of salary	39%	44%

Saving the additional 5% may be challenging in the current rental market.

A lot of people are not paying rent. They are living with their parents. Of course, it would be challenging for someone coming from outside a city to work in a city. They have to pay rent.

Brendan

 

[The Horseman]

Clearly it will push up prices.

But would will it result in zero additional houses built?

A policy can achieve both.

Yes it will increase the number of houses built but it will then put a higher floor on the price of property. Look at the HAP scheme for renters, it has not brought down the price of rents rather it has put a floor on them and they have just continued to increase.

 

[The Horseman]

Throwing more borrowed money at houses will increase the price of houses.
So it won't make it much easier for would be purchasers to get on the housing ladder.

Of course, increasing house prices would lead to increased profitability for developers so they would increase their output, by a small amount eventually.

However, it should not be the Central Bank's role to do this.

The government can increase the profitability and bring down the price of houses by the following

1. Abolish VAT on new houses
2. Abolish development levies
3. Abolish social housing levies

The government should also stop buying and building social housing in cities. They are pushing up the prices and squeezing private buyers out of Dublin so that these buyers end up with long commutes. Build social housing outside Dublin where the state could buy or build two or three houses for the price of one in Dublin. Why should workers who pay for their own houses have to commute while those who get social housing, many of whom are not working, demand to be housed in their own community?

Brendan

The Govt is unwilling to deal with the issues of social housing and the problems associated with them hence the reason of spreading the social housing throughout private estates.

I would certainly agree with those in social housing if they are not working are charged a rent that reflects the amenities they have around them rather than some arbitrary 10% of your income as your rent.