56 thoughts on “1987 Called…

  1. jimmy.bobby.83@gmail.com

    there has been talk about this for the last few days.

    would mean a lot of initial pain for those hoping to buy this year but, if coupled with restrictions on how much you can borrow, should reduce house prices to a level that is affordable to the average punter.

    might be good for me when I’m looking to buy in four years or so!!

    1. IDB

      Will it reduce house prices? I thought a significant amount of the demand was coming from investors, in many cases cash buyers…

      1. Happy Molloy

        the point of the investment would be a demand from couples buying at a higher price, this would slow that demand but only if coupled with a borrowing limit, or else it would not have too much effect?

          1. Happy Molloy

            borrowers yes but, and I could well be wrong, I believe the demand in the market is largely driven up by first time buyers who are usually young couples

      2. Outta me Bento Box

        The Investor Straw man is trotted out constantly. Where’s your evidence for this?

        Plenty cash buyers just wan tto live in the gaff they’ve saved up for – instead they’re being out bid by debt moneys with 35 year mortgages.

        Stop whining and start saving.

    2. JimmyV

      I don’t see how this will help the average punter.

      The couples currently buying the 200000-odd houses will buy the 150000-ers, investors will continue to pick up the family homes and rent them out at ever higher rates while the NAMA sweethearts finish developing what’s on the portfolio with tax incentives.

      I’m an established civil servant with 24000 in the bank. I currently can’t afford to buy. I’d hoped to keep my head down, save what I could and eventually find something that I’d probably spend years fixing up.

      Reading the proposed rate and term restrictions I don’t think I’ll ever be able to buy a home.

      Silly me for thinking I could

      1. Just sayin'

        Fair play for building up your saving but, from an economics point of view, why would a single man need to buy a 3-bed house on his own? Shouldn’t the Government try shape policy in a way to discourage single occupancy multi-bedroom homes. How about buying an apartment that would better suit your needs now and a 3-bed house when you have a partner and/or kids?

      2. Lee

        My partner and I just bought a house with less in the bank than you, in Dublin. There’s plenty of houses under 200K (allowing 4K for sols and stamp duty)

  2. JingleBells

    oooOOOoooHHH NoooOOooOo

    Im sure the banks wont lend you the 20% and record it as a Personal/car loan/home improvement loan etc

  3. erm

    And landlords round the country sleep easier on their big beds of money with their many beautiful women…

  4. Eoghany

    I’m not sure what this will do to house prices, but it will put a lot more severe pressure on the rental market. People will continue to rent for a long time, lowering supply of rental properties, and therefore pushing up rents further.

  5. Tom

    In the process of buying a home in Canada at the moment. The minimum deposit is 5%. If your deposit is between 5% and 20%, you have to pay additional insurance to the Canadian Mortgage and Housing Corporation (CMHC). They are effectively the lender of last resort in Canada, a bit like Fanny and Freddie in the US.

    If your deposit is over 20%, there is no insurance to pay. The insurance rate varies depending on the percentage deposit paid. It means that the 20% requirement isn’t the barrier it looks like on paper over here.

    That being said, house prices are shooting up, and there has been talk of increasing the deposit requirement to %25 to cool the market. They’ve also reduced the maximum allowable term to 25 years (used to be 30), and there has been talk about bringing that down to 20, again, to reduce demand if possible.

      1. Anne

        Reducing demand is a misnomer, it seems to me.

        There’s demand for housing or there’s not.

        People need homes to live in.. reducing demand is only done real terms to me, by increasing supply.
        Otherwise, you have a constrained housing market benefitting landlords/ investors.

      2. Tom

        One of the reasons to constrain supply is to dampen down speculation, another is to prevent the development of too many homes, leading to over supply and a possible price crash, another is to prevent one sector of the economy from being too large in terms of the overall economy, leading to systemic risk.

        I believe that the key for the govt is to support 1st time buyers and people who will live in the home for a certain period of time, maybe 5 years, to prevent flipping the house shortly after buying it.

        1. Anne

          leading to over supply and a possible price crash
          Understood, but I don’t see how an over supply and drop in prices is detriment to any potential first time buyer. Landlords, sure, but that’s the risk you should take with any investment.

    1. Rob

      That sounds very sensible. Does that insurance cover the buyer in case their house is repossessed and the proceeds of sale doesn’t cover the mortgage?

  6. Vbomb

    You live in Dublin and are thinking of buying? Enjoy your new 1 bed house in the Carlow countryside.

  7. ollie

    mortgage interest rates in Ireland are the highest in Europe. maybe the central bank could tackle this particular disgrace.

    1. cosine_beag

      I love that people randomly shout facts like X in Ireland is the highest/lowest/worst in Europe.

      Here are the details:Lending for house purchses

      Looking into the data in the table it is clear that interest rates in Ireland (2.72 in August) are lower than those in Belgium (3.5%), Cyprus (4.75%), Germany (3.79%), France (3.41%), Italy (2.99%), Malta (3.28%), Netherlands (4.33%) and Slovakia (4.30%)

      The euro area average (weighted by volumes of house purchases) is 3.23%, so all in all not only do Irish people pay less than their counterparts in most large European countries, they also pay less than the euro area average.

      1. Tucker Done

        It’s not clear from that site how those rates are calculated, they certainly don’t reflect the variable mortgage interest rates retail banks are charging at the moment (~4.5%). The disgrace is the gap between these rates and the rates the banks borrow money at (~0%)

        1. cosine_beag

          The ECB is fairly upfront with how those rates are calculated. If you click on the the Explanation button above the table in the link there’s a whole wad of links to the regulations and methodology used to calculate the loans. This is one of the statistics the ECB compiles with a regulation, meaning that they oblige reporting banks to accurately record the figures (as opposed to suing estimates). You can even drop them an email and they’ll write back (the email address is also on the explanations page).

          Now on the issue of 4.5% interest rates those are new business rates, and indeed they make up a part of the overall rate (shown in the table) but as new business dwindles their overall contribution becomes less and less. However it is not fair to compare the Marginal lending facility rate (actually 0.3% not 0% as you claim) to the rates offered on Mortgages as they don’t capture lending of the same maturity.

          Sure a bank can go to the ECB and ask for money, but they have to post collateral for the money and pay it back in a short period of time. A mortgage on the other hand is a loan which will mature in a period of 10 to 40 years. Operationally it is not sustainable to rely on short term funding for long term debts. This type of business strategy was a main contributing factor in the run on Northern Rock in 2007 and is noted as an factor in causing the 2008 financial crisis.
          This fact has been acknowledged by the Basel Committee on Banking Supervision notably through the introduction in Basel III of the Liquidity Funding Ratio and the Net Stable Funding Ratio.

          A bank will therefore have to borrow from long-term from other banks and investors (e.g. through issuing bonds) or lend out its deposits to finance the mortgages it offers. Collateral requirements on borrowers reduce the exposure of depositors to the banks lending behavior and arguable also reduce the level of complexity in the financial system as less money needs to be borrowed from other banks.

          The interest rate encapsulates the total cost of lending the money to the customer, this is not just how much the bank has borrowed for the loan, but also a premium for the risk of the loan. In current economic circumstances (volatile house prices, uncertainty in employment market), banks can’t offer low rates because they need to charge for the risk that the house value falls and moreover must charge for the chance the borrower is unable to repay the loan. Unfortunately, the bank needs also to pay for its previous operational errors, in particular tracker mortgages which rely on short term ‘money market’ funding (à la Northern Rock) do not liquid money markets available to keep them ticking over, in order to make up the difference, banks should also charge their new customers to cover the losses.

          Overall, the cost of borrowing should fall, because there should be a reduction in the risk the bank faces from the depositor, this in turn should also lower the rate at which banks pay on their own borrowings, which could have a knock on effect.
          Although no one has mentioned it, I don’t think ‘skin in the game’ will be a contributing factor in making Irish borrowers less risky as, well, the most skin one can have in the game is one’s own house.
          Also, the rules are for Irish banks, and therefore won’t deter the international investor either.

          The aim of the measure has nothing to do with interest rates though, it’s a measure to temper house price inflation. Here is my naive analysis of the idea behind it:
          Let’s say the a saver has €20 k saved up before buying a house and are looking at a house with a market value of €100 k.
          Before the measure a bank would give them 95% (i.e. €95k) of the house value. When they go to buy the house, the seller might have had another bid but are willing to sell for €120 k, because of the customer’s saving the bank will still lend the money (up to €114 k). The added value of the house is created by the fact that more money is available to buy the house, not because the house is worth more money. In a world where it is difficult to increase prices buy 20% and still find buyers, sellers will not be able to do this and prices will be more stable.

      2. Just sayin'

        Great to have actual facts on here for a change. I imagine tracker mortgages significantly offset the higher variable rates available now.

  8. Sinabhfuil

    The ‘investors’ (speculators) are less likely to put their money in Dublin three-bed semis if the prices aren’t shooting up. This is a good move.

    1. Mick Flavin

      If this has a knock-on effect of fewer people being able to buy, is it not possible it would drive up rents further, making buy-to-let property still more attractive to speculators/landlords?
      Or am I way off with that? It’s a complex old issue.

      1. Happy Molloy

        I think that would still happen but the investors would be domestic as opposed to foreign.
        definitely needs to be tackled but I don’t know how. second property taxing I suppose

  9. Louis Lefronde

    If the Government wants to keep the property market in check to avoid another systemic crisis, firstly it must tax the buy-to-let market to act as a disincentive to those competing against buy-to-live purchasers, secondly it needs to increase supply to reduce overheating, and thirdly apply strict rules on mortgage lending to avoid price-chasing by the financial institutions. It seems to me, that the lenders have learned nothing – safe in the knowledge if they screw up, they will be bailed out again without repercussions.

    1. Happy Molloy

      maybe the role of estate agents would need to be examined also, with an official registry of bids on a property to combat artifical inflation at sale time

    2. Italia'90

      Also the price of land needs to be addressed and the issue of land banks in the control of speculators.
      Was it the Kenny report in the 80’s that forewarned us about this?

    3. Anne

      +1 Louis.
      20% wouldn’t be such an issue, if those other suggestions you mention were put in place.

  10. Kolmo

    Does anyone know the percentage of take home pay is spent on accommodation in Ireland in comparison to other similar sized population centres?

  11. DoM

    So first we were screwed over by the appalling legacy of planning which led to a massive shortage of property in built up areas. This meant we were then screwed by massively increasing rents with little by way of control (oh, you can only put it up as much as you like once a year? Great!). And now, when rents are going so mad that it actually makes more sense to buy, first time buyers are being priced out of the market even more than they were before.

    To buy something that isn’t a shoebox anywhere moderately nice in Dublin you’re looking at (conservatively) €300,000. That means saving €60,000 (presumably while paying rent). So €500 a month for TEN YEARS. And saving €500 a month isn’t exactly trivial, and it’s fair to say that current trends suggest house prices will have increased by more than the value of those savings over the 10 years, so actually it’s probably more than that.

    How about some real rent control, and proper policing of the rental market, to disincentivise everyone with a few quid from investing in property? Or (as suggested above) some controls on the “sure-I’ve-just-had-a-great-offer-you’d-better-add-on-20-grand” estate agents?

    Or just sell the young folk down the river again, why the f**k not?

    1. Outta me Bento Box

      You’re some snob! What an entitlement attitude! You are Ross O’CK?

      An apartment in my block is up for sale for much less than 300k – it’s spacious and in a decent part of town. A similar one sold a couple of years ago for less than 200k

      ever occur to you that
      1) There are many cheaper places than 300k
      2) You can always start somewhere smaller and start saving / paying down your mortgage
      3) Prices will react to the lack of credit?

      the level of economic illiteracy combined with entitlement and snobbery is palpable

      1. DoM

        Define “spacious”. I’d content that there are practically no apartments in Dublin that would qualify as “spacious”. Most are the minimum size allowable by law. But that’s a bit of a moot point.

        Anyway, it’s not about entitlement. It’s about being forced to “do your time”, where doing your time means putting money in the pockets of poorly regulated landlords for years and years (how many years of inflated rent should I have to pay before I can moan with being “entitled”?). The same group who are suffering due to that piss poor regulation (which has led to 20% year on year rental prices in some areas) are now suffering because an arbitrary minimum deposit has been set.

        This might, over a period of time, help a bit in terms of bringing down property prices. Or it might mean that rental demand is sustained at an artificially high level, which will mean that buy-to-let is more attractive as an investment, which could easily be enough to wipe out the potential price decreases. So the winners here are those who can afford to buy property, as they can then rent it out for crazy amounts (and drag their feet doing any repair work, which seems to be the standard approach).

        I should probably say that if there was proper rent control I’d totally change my tune. As it is, with rents approaching actual mortgage costs in some areas, it feels like I’m being told “can’t afford a deposit? Well then go pay someone else’s mortgage for them”.

        1. My Daddy is bigger than Yours

          Why don’t you go on to myhome and search for apartments over 70sq m – I got a hit for over 100. Many much cheaper than 300k.

          The fact that you moan about paying rent and can’t see the link between soaring prices and easier credit shows you’re either economically illiterate or a shill for the property industry.

          Buy to lets are now a poor investment. Tax is payable on rent along with PRSI! BTL mortgages are capped at 70% but that passed you by…

          1. DoM

            I’m not suggesting that credit shouldn’t be restricted, and I have no problem with restricting loan to income ratios, but insisting that someone has a certain level of savings in place before buying is putting first time buyers at a huge disadvantage.

            There seems a lot of disagreement over the likely outcome of this policy, but I’ve yet to hear anyone suggest that someone in my situation will benefit from the 20% deposit requirement.

  12. Kolmo

    I assume when Ross O’Carrol-Kelly gets his old job back in Hook-Lyon & Sinker Estate Agents is sufficient warning to the nation that things are getting all a bit out of control..

  13. Italia'90

    He’s far too busy with the new government contracts. The dept.’s of An Taoisech and Environment alone have him so busy he has to leave Rosa Parks in Ticknock before 9am every morning.
    Shred Focking Everything is planning to announce 500 hundred new Jobbridge jobs before Christmas.
    Everyone wins.
    Ukrainian apartments will be the new Bulgarian apartments next year.
    You can take that to Austin Hughes in the bank!

  14. Disgruntled Goat

    10% for owner occupiers, 30% for investors. Similarly variable interest capped at 2% lower for owner occupier v investor (ie investor rate 5%, owner occupier rate capped at 3%). Minimum residency rules (must live there for 3 years?) to qualify for owner-occupier rates.

    These kind of measures should be targeted at speculative investors/amateur landlords to protect people trying to buy a home. Public bidding process to reduce the power of estate agents as mentioned above is also a good idea.

    Likelihood of any of the above being implemented…..

  15. Dee

    Buy to let investors are apparently exempt from this new rule. I wonder what could possibly go wrong?!

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