80% LTV restriction deeply unfair: Loan to Income ok

Duke of Marmalade

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I have no problem with the banks themselves setting their rules, which they should do on a rational economic basis.

When an organ of the state interferes with that process it is potentially very unfair to those it disadvantages.

Now a curb on income multiples seems reasonable enough and not obviously unfair.

But an insistence that the mortgagee stomps up 20% of the value of the house is blatantly unfair and favours greatly those whose daddy can cough up.

Consider a high flying Ph D who has just landed a plumb 100K a year job with Merrills. This gal is one good lending prospect. Unfortunately she came from Tallaght and neither her nor her folks have a bean (spent it on educating her). She is certainly good for a 500K mortgage by any commercial criteria, but Patrick wants her to save 100k to get on that ladder. How many years will that take! I presume Patrick never had any similar difficulty.:mad:


Update: I have just read SBarret's Key Post. I note that there is scope for LTVs above 80% for 15% of lending.

So I take back my criticism of Patrick. These proposals seem eminently fair and sensible. 15% should easily be enough to cope with Miss Tallaght Ph D.
 
Well, Duke, if you remember I was foremost in calling for bankers who lent mad a few years ago and brought the country to its knees and should be jailed. If the banks have learned any lesson it is that people must be always capable of repaying anything loaned to them. Unfortunately, the banks in the past lost sight of this and we are where we are as a result. So these new regulations are set up to prevent any such recurrence of what happened.

For the record when we got our first mortgage back in the seventies of £6000 plus a term loan of £500 and before the mortgage was advanced to us we had to pay bridging finance for the best part of a year before our mortgage commenced. Not only that we were placed on a waiting list for even the bridging finance.

The builders have gone crazy again and once again there are stupid people queueing overnight to view property so I reckon these practices must be stopped and housing must remain at a fair price.
 
The primary role of the CBI is to make sure banks don't go bust. If it perceives house prices are frothy then increase the capital needed to back resi mortgages. If it perceives LTVs over 80% are becoming high risk then increase the capital requirement.

The CBI should have no role in setting house prices per se which is what Patrick seems to have taken on.

Surely it is almost unconstitutional for Patrick to shut out of the market asset poor, income rich miss Tallaght PH D, commercially a very sound lending prospect, in favour of silver spoon D4 spoilt boy.

Maybe Patrick is a Tallaght boy, but based on this self promoting initiative I guess not.
 
Before the Euro and Eurozone the central bank raised interest rates to cool borrowing, now they don't have that lever any more so maybe the 20% deposit requirement is no harm.
 
Why does the Tallaght Phd lady need a €500 k house? There must be cheaper houses in Dublin than €500 k?
 
She doesn't but the point is, she has probably studied into her late twenties or early thirties with poor earnings and perhaps some debt. Now she is into her thirties has to clear that and save 60k for a deposit on a modest enough property in Dublin.

100k sounds like a lot, and it is, but its still going to take a good while to save that kind of cash.
 
Do we know that this is the work of the Irish Central Bank or a dictat from the ECB?
 
I have just read SBarret's Key Post. I note that there is scope for LTVs above 80% for 15% of lending.

So I take back my criticism of Patrick. These proposals seem eminently fair and sensible. 15% should easily be enough to cope with Miss Tallaght Ph D.
 
I have just read SBarret's Key Post. I note that there is scope for LTVs above 80% for 15% of lending.

So I take back my criticism of Patrick. These proposals seem eminently fair and sensible. 15% should easily be enough to cope with Miss Tallaght Ph D.

Or will the 15% be used to mainly help out those related to people in the know- this is Ireland after all
 
I have just read SBarret's Key Post. I note that there is scope for LTVs above 80% for 15% of lending.

So I take back my criticism of Patrick. These proposals seem eminently fair and sensible. 15% should easily be enough to cope with Miss Tallaght Ph D.

When I read your original post, I was going to put in size 7 font, there is a 15% allowance. ;)

I think the proposals are perfectly reasonable. The banks can't be trusted to run amok again and with limited options, these restrictions are the best they can do.

Or will the 15% be used to mainly help out those related to people in the know- this is Ireland after all

I doubt it. With the restrictions on borrowing now, the kind of borrowing given during the boom seems to be over.

It's 15% per bank in a 6 month period. So even if you miss out with one bank, you can apply to be in the 15% of another or wait for the next 6 month period to begin.

Steven
www.bluewaterfp.ie
 
The option of insurance cover to meet a potential 20% drop in the price of a property does not appear to have been addressed in this country. It will mean a higher cost for the borrower but as in the States it does mitigate the risk of 100% borrowing. I don't understand why this option has not been explored here!
 
I am glad central bank is doing something to help prevent another major bubble but it has to dissuade buy-to-letters also. For me as a potential first time buyer, the moving of goalposts is very frustrating. If we had known a couple of years ago, we might have saved more strongly. As it is, I think we are reasonably good with our finances and this is still a massive blow.
 
These proposals will probably be a great help to Ms. Ph.D. Tallaght

It will remove a lot of the borrowers from the market who would have been competing with her and who would have been pushing up the price.
 
These proposals will probably be a great help to Ms. Ph.D. Tallaght

It will remove a lot of the borrowers from the market who would have been competing with her and who would have been pushing up the price.
I take your point Boss. Now that there is a quota on high LTVs the banks will come fussy and only fill the quota with the best income prospects.
 
In a market where there is no bubble, where prices are reasonable and stable, than a 10% deposit is fine. 20% is way too high an expectation.
 
We're not in a market that's reasonable and stable. There is a shortage of housing and a ready supply of people prepared to mortgage themselves to the hilt to buy it. The right solution is to increase supply, but that can't happen today or tomorrow. So the only other way to avoid a bubble is to reduce demand. You do that by taking people out of the market. You can argue til the cows come that this disadvantages Ms. Tallaght Ph.D. or any other grouping, but if your solution to cooling the market is to take people out of it, then somebody who was a potential buyer has to be discommoded no matter how it's done.
 
The option of insurance cover to meet a potential 20% drop in the price of a property does not appear to have been addressed in this country. It will mean a higher cost for the borrower but as in the States it does mitigate the risk of 100% borrowing. I don't understand why this option has not been explored here!

The Central Bank did mention lenders obtaining mortgage insurance for loans over the 80% cap but felt it would weaken the effectiveness of what they are trying to do. They said they will look at it again in a limited capacity.

I left it out of my summary because it is very unlikely that is going to be introduced.

Steven
www.bluewaterfp.ie
 
TTY he question is what are they actually trying to achieve? Is it to ensure safety of lending or a cooling of the property market? If the latter then is this a proper function for the CB?
 
TTY he question is what are they actually trying to achieve? Is it to ensure safety of lending or a cooling of the property market? If the latter then is this a proper function for the CB?

I would be inclined to think that it is really safety of lending but are happy for other parties to talk about it as a measure to cool the property market. The two are interrelated though.
It is a crude enough tool where it is being used across the board. There is a "bubble" in Dublin and its hinterland but there are a lot of areas where prices have not increased by much since the crash. Some of these areas would have a lot of quite low paying jobs and the 20% deposit might be tough enough to achieve as well for people intending to purchase. I know anything is possible but it is highly unlikely that property prices will fall any further than they are now.
 
I find the specification by the Central Bank of specific cut-offs for individual mortgages strange. I would have thought that they should be aiming at a more macro level. OK, maybe specifying a max LTV to avoid 100+% mortgages makes sense but beyond that I think fixed rules are too cumbersome to deal with the intricacies of real life.

I would suggest that they specify a maximum LTV for an individual loan, say 90% but impose a more strict overall LTV on the institution, e.g. 80% or less. This will allow a given bank to give out 90% mortgages in some cases (e.g. Miss Tallaght Ph.D.), but not be able to give them to everyone as they would have to balance the number of higher LTV mortgages with lower LTV mortgages elsewhere.
 
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