We were pleased to be part of a discussion with Matt Cooper (Today FM) and Kevin Doyle (political editor at The Independent) on the topic of housing on The Last Word.
The analysis we provided was to make the point that help to buy cannot possibly be behind house price increases across the nation. We also made the point that prices would have risen even without it and that you need to look at the secular trend not just the short term ones.
It bothers me when people promote long-term renting as a better choice than home ownership because it belies some basic facts.
When I was studying accounting, I was taught to be accurate. When I was learning about financial advice, I was taught to be prudent. Yet both of these concerns are often cast aside when debating the benefits of buying versus renting.
Nationally we are at an important juncture. It’s acknowledged that huge numbers of people won’t be able to afford to buy a home. If this proves to be true, many will also be locked out of one of life’s most wealth-creating activities.
The first problem is the nature of the comparison. If rent is €1,300 a month and a mortgage costs €1,500, then it’s cheaper to rent, right? Well . . . no it isn’t. The outlay is less, but the actual cost of the provision of occupancy is the rent versus the interest portion of the mortgage, not the entire payment. I will explain that point.
People often say rent is dead money. To be fair, so …
Mark Keenan quoted Irish Mortgage Brokers on the topic of how the Central Bank regulations were affecting prospective property buyers.
Meanwhile, Karl Deeter of Irish Mortgage Brokers described Mr Frisell’s comment as “effectively engaged in social engineering”.
“If they know that shifting people from ownership and into rental is the outcome of their policy, and they keep on doing it, then we have to assume that this is the outcome they have been pursuing,” he said.
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 …
We were quoted in a this piece by Aoife Valentine of the Irish Times which was an interesting article about the situation renters face.
When discussing the rising age of first time buyers she quoted us as we mentioned that “this is something that’s become very obvious to mortgage broker Karl Deeter.
“When I started working in lending in around 2003, people in their 20s were borrowing. Nowadays, your typical applicant is no longer 24 to35, they’re 30 to 40,” he says.
New mortgage lending rules issued by the Central Bank in January say that first-time buyers may borrow only 3-and-a-half times their gross annual income, and they must save a 10 per cent deposit on the first €220,000 of the value of the property and a 20 per cent deposit on any higher value.
Deeter believes these rules are now having an effect on who gets on the property ladder.
“What the deposit rules have done is keep people in the rental sector when they otherwise would have been …
Joanne Daly has been a broker for 13 years and in this piece she speaks to Karl Deeter about the errors that first time buyers make prior to making their mortgage application, thankfully most of what she mentions is easily rectified!
The Central Bank rules on curtailing mortgage lending have had an interesting effect, first is that we are seeing more loans draw down that might not have because people are bringing forward consumption due to the fact they won’t qualify for the same amount again in the future. This is literally the opposite of the intended effect.
Second is that it’s causing chaos for prospective buyers who may hold an exemption or need an exemption because there are quarterly reporting rules that mean banks can’t offer a new loan until they know if an old one will be drawn or become an NTU (not taken up).
Perhaps the easiest thing to do is explain it, currently you can’t get an exemption from Ulsterbank or AIB/EBS/Haven or BOI, but you can from PTsb and KBC. The banks that can’t give you one (and remember it’s only one of LTV or LTI not both) are hogtied because they have given the limit of exemptions (c. 15%-20% of lending) already in loan offers and they have to estimate both the annual and quarterly …
Just when we thought we heard it all in terms of the strange scenarios you encounter in credit, up pop’s something new, the problem of ‘over-saving’. For most of us the problem is ‘saving anything at all’, but in some cases the potential borrower goes far beyond what is good for them.
Here is how it manifests.
So far we have seen this mainly in people who are at average wage and below, and how it occurs is that in an effort to save as much as possible that they then make their bank statements look bad.
I got a call from one of our brokers to look at a case they had, the bank statements didn’t look good, they had referral fee’s and were in overdraft.
A referral fee is where you might have no overdraft and you go overdrawn, you might have €10 left and go to withdraw €200. In this case you’ll be minus €190 and see a thing called a ‘referral fee’ which is typically €4.44 it means that you broke the terms of the account …
This is a copy of a good debate that took place on the Sean O’Rourke show today on RTE Radio. It was a good example of how two contrary points can both have supporting arguments which seek different ends but where both sides have validity. We think that a return to bubble credit would be a disaster, but equally hold dear the idea that it isn’t up to Central Banks to orchestrate the winners and losers in society.
The news that higher loan to values will have to be limited is being mistakenly applauded by many financial commentators, almost none of whom work in credit. Towards the end of the post we demonstrate that you can actually be worse off by being forced to wait and put down a larger deposit than if you acted normally and bought today with a 10% deposit.
That’s why taking a look at the numbers beneath and how it will affect mortgages is important. First time buyers are typically the younger end of the house owning spectrum, they largely chose to stay out of the market during the financial crisis, a good choice, very rational.
That is why the people renting rose so much between 2006 and 2011. A total of 474,788 households were in rented accommodation in 2011, a considerable rise of 47 per cent from 323,007 in 2006.
It created a build up of non-owners who want in, but who are not the main driver of property price increases …