We were happy to take part in a conversation on the Last Word with Matt Cooper about the recent Ulsterbank loan sale, Karl Deeter was there for Irish Mortgage Brokers and Mick Barry TD was also part of the interview.
Non-credit fuelled booms
There has been an ongoing narrative that the last housing boom (and many others) was only possible due to excessive credit. We have argued for a long time that this is a mistaken interpretation. While credit can make a bad situation worse, just like adding fuel to a flame, it is not the genesis of the problem.
We were pleased to see this view articulated by the Central Bank Governor Philip Lane recently. He stated that “cash buyers of property are limiting the ability of the Central Bank to control house prices through mortgage lending rules” he “singled out cash buyers as one of the key drivers of inflation in the Irish property market. Cash buyers used to account for about 25 per cent of house purchases in Ireland, but since the crash and ensuing credit crunch this figure has risen to 60 per cent“.
This is a point we have been making for years, firstly was that first time buyers are not, and have not been the problem. That was part of why we were specifically …
One Big Switch findings on mortgage holders
There was an interesting infographic out today from One Big Switch showing what people have done in order to make their mortgage repayments.
It ranged from working extra hours, to taking fewer holidays and socializing less. What is interesting about this, is that nobody tends to look at the wider economy effects of high mortgage rates, and the Central Bank while saying they want to examine them, cannot and will not do anything about it.
Higher rates act like an informal ‘tax’, and as some banks are foreign owned it means taking income out of the Irish economy and funnelling it elsewhere, this affects our balance of trade and was a reason we always questioned the Patrick Honohan diktat of not having an issue if all banks were foreign owned.
This informal tax reduces expenditure in the productive economy and goes towards rationalizing zombie balance sheets, so lower rates should be a priority for everybody, but the way to get there isn’t force, it’s competition and for that reason we are hopeful that the switching campaign will be a successful …
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 …
Two identical first time buyers walk into a bar, one qualifies, the other doesn’t
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 …
RTE Drivetime: Talking money on ‘Kidults’ with Karl Deeter & Jill Kerby
This week on RTE Drivetime’s ‘Talking Money’ segment we looked at the issue some parents have with ‘Kidults’ who are grown up children living at home. There are many reasons behind the increased occurrence of people remaining at home, and there are both advantages and disadvantages, we tried our best to give some tips that might help!
Central Bank Mortgage Cap Calculator: did you get shafted?
We have designed a simple calculator that lets you put in your property price, what rents you are currently paying, how you think prices will change and how many years it would take you to save a 20% deposit if you only have 10% now.
Just download the excel file, fill in the bright yellow boxes on the first sheet, and then scroll down to the green area to find out if you win or got shafted. (download here)
You can play around with different scenarios, but suffice to say that a regular couple who have €25,000 saved up and are looking to buy a property for €250,000 today will be worse off if rents and property prices went up by 2% a year (and it took them 4 years to save the additional deposit required) to the tune of €15,500.
We don’t believe it is in the remit of the Central Bank to damage the balance sheets of financially healthy individuals, but you can test your own hypothesis and see how it …
Today with Sean O’Rourke on ‘coming out of negative equity’
We spoke about the up and down sides of coming out of negative equity 0n Today with Sean O’Rourke on RTE1 where Keelin Shanley was sitting in.
There are winners and losers in every economy, and many things in economic terms come with a series of trade offs. So to think that rising house prices are a good thing is only taking the view from one pre-determined set of assumptions, there are many losers when we create winners and that needs to be remembered. We are hopeful that those points were well made.
An unusual mortgage approval
That banks are lending enough is evidenced in gross lending contraction, that they simply ‘aren’t lending’ is factually incorrect.
We encounter all kinds of strange paths to homeownership with our clients and thought it might be worth showing a recent example which probably never would have made it through without a broker, branch banking typically run a mile from this type of case or don’t spot the angle.
In this instance we had a permanent worker with a child and no savings. This instantly has a few negatives, having children reduces your borrowing capacity and not having savings diminishes any hope left.
With this case in particular though, there were other aspects that swayed it. The client lived with a relative who was selling a property and moving in with a sibling, some of the profits were going to go towards helping our client make a purchase.
A gift alone normally won’t help you get a loan, you have to prove repayment capacity, some lenders will let the whole deposit come from a gift but you still …
Capital and interest mortgage, annuity, repayment – defined
There are four main types of loans, these differ in the way the capital is repaid to the lenders.
Capital & Interest, the most popular type of housing loan, where the borrower makes regular repayments – part interest / part capital. These are usually for an agreed term, typically 25 years however in recent times the term can be as long 30 -35 years.
C&I loans are also know as Repayment mortgage, Standard mortgage and Annuity mortgage. In the early years of a C&I loan the majority of the repayment is used repaying the interest, so the capital reduces slowly.
So as the capital reduces with each repayment, so does the amount of interest payable on that capital.
The other types of loans are interest only repayments with the capital sum been paid at the end of the term from, a:An Endowment Mortgage b:A Pension Mortgage c:The sale of the property / asset.
This means that the borrower pays interest only for the term of the agreement and only repays the capital sum at the end by means of a …