The Last Word on TodayFM features Irish Mortgage Brokers, 30/04/2020

We were part of a discussion around Covid19 and mortgages on Matt Cooper’s ‘The Last Word’ show on Today FM yesterday. The other participant was Brian Hayes of the Banking and Payments Federation of Ireland.

For our part we were impressed with the fact that the banks have been able to do more than 2,000 mortgage restructures per working day since the pandemic driven mortgage breaks were announced. To put that in perspective, it took six years to do 100,000 restructures after the financial crisis. This time around that figure could be achieved in a little over two months, that is something to be commended.

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First time buyers who don’t buy new homes

First time buyers have been asking ‘what about those of us who are not buying a new home? Why don’t we get any help like the people using help to buy?’. The answer is that you do, at least for the remainder of 2017.

There is still a DIRT relief for first time buyers scheme in action, it started in 2014 and is ongoing until the 31st of December.

The scheme doesn’t help you get a deposit, rather it’s a refund after you buy, see the notes below taken from the Revenue.ie website:

Section 266A of the Taxes Consolidation Act 1997 provides for refunds of Deposit Interest Retention Tax (DIRT) for first-time buyers who purchase a house or apartment to live in as their home. It also applies to first time buyers who self-build a home to live in.

Who can claim it?

A first-time buyer of a house or apartment who purchases or self-builds a property between 14 October 2014 and 31 December 2017 may be entitled to claim a refund of DIRT.

The first-time buyer must not have …

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Making sense of ‘help to buy’

Yesterday Revenue announced the details of the new ‘help to buy’ scheme. It is designed to make buying a home more realistic for first time buyers and to increase the supply of new homes. Whether it’s a good or bad idea is beside the point, what most people want to know is how it works so here’s the breakdown.

It’s a scheme to allow first time buyers buying a new home to get a rebate of up to 5% of the purchase price or contract price (whichever is the lower) from income tax and DIRT tax paid in the past four tax years to a maximum of €20,000. The property must cost less than €500,000 or 600k for retrospective applications, the size of the loan versus the value of the property must also be 70% or more.

So, for every €100,000 of value you must be borrowing at least €70,000 the idea being that very cash rich buyers don’t need this help. It started on the 19th of July 2016 and goes until the 31 Dec 2019.

Now that it’s …

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The rich will prosper when the rules make sure they do.

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 …

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Mortgage interest relief set to end, but is it worth it?

Mortgage interest relief ‘tax relief at source’ or just ‘trs’ is a credit available to first time buyers who purchase their first home prior to the end of 2012. Currently it is due to be discontinued from 2013.

At the moment it is applied as follows:  up to a maximum of €10,000 interest per buyer can be applied so you take your total interest paid for the year and add it up.

Say you buy for 200,000 with a 10% deposit and an interest rate of 4.5% the cost per year is €1000pm over 25yrs. The interest portion is as follows:

(200,000 * .9 [90% mortgage) * 4.5% = 180,000 * 4.5% = approximately €8,100 a year will be treated for TRS reasons which is 25% for the first two years reducing to 22.5% for the next three years and 20% after that.

The 8,100 gets 25% relief = €2,025 or about €169 a month. In the example above when you get this credit it will mean that your ‘cost’ is €1,000 – €169 or €831 per month.

Because the …

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How much of a deposit do I need?

When making a mortgage application this is a question that many first time buyers want to know, how much money do I must I have for a deposit? Well, that kind of depends on which bank provides the mortgage finance!

Lending criteria is different for every bank/building society/lender, this goes for rates, the general underwriting criteria as well as the ‘loan to value‘, the deposit you need is 100% minus the Maximum LTV and that will give you the deposit amount you require. For instance, ICS have a maximum LTV of 92% so the deposit you need – if you are obtaining finance through them – is 100% – 92% = 8%.

What is interesting in that example is that when you go ‘sale agreed’ on a property the estate agent will ask for a security deposit and the balance of 10% at the signing of contracts, this is an example …

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Retarded banking policies

Banks allowed their commercial teams to make a really big mess which the nation now has to clean up, the mess wasn’t on the residential loan book (although it may be in the future), it was primarily on the commercial/development book and those are the loans that NAMA will be taking.

So one might think… ‘at last, the bad stuff is out of the way’ and it is for the most part, at least from a ‘toxic asset’ point of view, what isn’t out of the way is the continued lack of foresight that major banks in this country seem to have.

I ask: ‘Did you know property prices have fallen significantly?’. ‘No I didn’t’ said the martian who just rode in on a moonbeam and landed in my office, but other than him, everybody knows the craic, house prices are down everywhere to varying degrees, and that means prices are lower than they used to be.

So why are some banks refusing to look at mortgages where the actual value of the property is …

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