We were really pleased about being chosen to discuss mortgages on Newstalk’s ‘Lunchtime’ show with Andrea Gilligan, it was part of a series called ‘project house’ which is helping people figure out how to buy a home. They needed mortgage advice and went to the experts!
Pat Kenny had Lorcan Sirr from DIT and Karl Deeter from our company on to talk about the property market in particular in light of the changes announced by the Central Bank.
The conversation covered many topics in the market and outlined where so many issues in housing are arising.
23 November 2016
Outcome of Review of Mortgage Measures announced
§ Review confirms that the overall framework is appropriate and the measures have contributed to financial and economic stability.
§ Review based on extensive analytical work and public consultation.
§ Refinements to improve the effectiveness and sustainability of the measures.
*** More detail at press conference today at 14:30***
The Central Bank of Ireland today (23 November) announced the outcome of the review of the mortgage measures, following an extensive consultation and evaluation process. The mortgage measures were introduced in February 2015 to enhance the resilience of both borrowers and the banking sector.
The review affirms that the overall framework is appropriate and the measures are contributing to financial and economic stability, reducing the risk of unsustainable lending and borrowing.
Following the review, the framework is broadly unchanged. The 3.5 times ceiling on the loan to income (LTI) ratio remains. Requirements for buy to let borrowers and the exemptions for negative equity mortgage borrowers from the measures also remain unchanged.
The review identified a number of refinements to improve the …
This picture speaks a thousand words and in many cases tens of thousands of earnings that a person would have to have in order to afford an average home in different parts of the country. We used recent data from the Daft report and then broke it down into borrowings and compared that to average wages.
The column after ‘county’ is the average price in that region. If we assume a first time buyer will typically want a 90% mortgage we then look at the amount of earnings they’d need to have in order to get the loan.
The last column is where the real story lies, it compares prices in the area to average wages taken from the CSO.
Anything in a white cell with a minus is very affordable, anything in black means you’d have to be earning above average wage to buy a property in the area.
If the cell has a red background that is showing you where the difference is greater than €10,000.
It’s fairly clear that cities and in some cases …
We sent our research and thoughts on the lending rules to the Central Bank as part of their industry consultation process regarding the existing mortgage lending rules.
While we are critical of them in particular for first time buyers, we haven’t had an issue on other aspects of it (such as controls for investors). The submission argues with supporting evidence for 90% loans for first time buyers to be available generally but to keep other controls generally in place, or to do nothing at all and give the adjustments more time to bed in.
Submission is here: 2016 Central Bank macroprudential rules submission Irish Mortgage Brokers
The findings of a survey carried out by Behavior and Attitudes of clients of Irish Mortgage Brokers, DNG and Hooke & MacDonald which was mentioned in the press is also available here: 2016 MacroPrudential review – survey findings
We were speaking on Newstalk about Central Bank rules and the impact they are having on different parts of the market. Some of the notable moments are mentioned below:
Karl Deeter of Irish Mortgage Brokers & Advisors.ie noted that high mortgage deposits are forcing people to stay in rented accommodation and fueling the housing shortage.
Deeter said: “If you’ve got people who have to come up with an extra €20,000 and they’re looking to save that, they end up renting a house for much longer than they would have. But because of that what you’re seeing is that they’re staying in a certain sector where the supply isn’t coming on board.
“It’s driving up rents. That’s almost like an additional tax which makes savings harder. It doesn’t mean that house sales have stopped or the prices aren’t rising; they are but it’s just that people aren’t borrowing to do it”.
The full story is on the Newstalk website here.
An often overlooked aspect of finance is that mortgages are actually a brand of savings, as perverse as that may sound, you have to consider what happens when you pay off a loan over time. The ‘interest’ is the part that pays for the right to use money from the future (which is what credit is, it’s moving money through time) in the here and now, the other part is a ‘capital’ repayment.
When you repay capital you are making a balance sheet gain (or for those into more up to date accounting speak, you make an improvement on your ‘statement of financial position’), even if prices stay static, over time you will eventually owe zero and that means you have a large asset which is the end result of this ‘savings’, albeit not in actual cash.
When you have a housing scarcity and rents are rising, this acts like a ‘tax’ on income, rent and mortgages are paid in after tax income, so the urge to buy when buying is cheaper and obtain a fixed outgoing (as you can …
Pat Kenny interviewed Karl Deeter about the Central Bank lending rules and why, in his view, they could have been done slightly differently and better. It’s an interesting insight into the difference between control-lead regulation and results-oriented regulation.
Conor Pope from the Irish Times had an interesting article on lending restrictions and did a good piece on it in today’s paper. In the piece he quoted Karl Deeter from Irish Mortgage Brokers on his views about the effect of the Central Bank rules on the property market.
“Karl Deeter, a mortgage broker and keen observer of the property market, has written an extensive report on Dublin’s boom-and-bust cycles spanning 300 years. He is not one of the Central Bank’s cheerleaders, and he is unconvinced that the 2015 scheme deserves much credit.
“I don’t think the new rules have had any real impact on the house market despite how it might be characterised,” he says.
Deeter points to an International Monetary Fund study of six countries that introduced lending restrictions. The report indicated that the rules made little difference, he says.
“In the credit market the rules have caused a fair bit of chaos. But I think prices were going to slow down anyway. We are in the middle of a property cycle, and cycles …
We have been critics of the Central Bank mortgage lending caps, believing instead that a rule similar to section 149 of the Consumer Credit Act could be used on underwriting to ensure that banks can’t find any way to loosen standards rather than employing ‘hard caps’.
What’s more, it has kept many people out, caused a chaotic 4th quarter and ensures that well off people are unaffected while those most harmed are the less well off. Our submission to CP87 was ignored in its entirety but that doesn’t matter because the results speak for themselves.
Mortgage lending is still mainly going to first time buyers, 57% of draw-downs were to first time buyers, but then look at the income multiple and you see that this is nearly five times average earnings.
What does that mean? For a start, that people on high wages with high savings were doing a lot of the lending, of course that’s fine because it was always a case that they had access to credit.
The issue is more …