I have moved the responses to this post to a separate thread, as none of them addressed the issues raised.
It's an interesting proposal although the paper explains it very poorly. (I can hear Peter Mathews speaking as I read it). It's also published in a stupid format, so I don't know how to quote it.
"A snap shot of the market shows that average house prices are running 6 times average incomes, above the historic norm of 4 to 5 times.
A mortgage applicant wishes to purchase a house for €600k in this market. In line with historic norms, the Fair Value price would be €500,000. The 90% LTV limit would be applied to this value, reducing the maximum loan to €450,000."
In other words, at current market prices, houses are overvalued by 20%.
I am restricted to borrowing 90% of the correct value.
If a First Time Buyer wants to buy a house for €200k.
The fair value is €160k
He can borrow €144k (90% of €160k)
That is 72% of the market value.
The Reform Alliance's proposals have been more or less ignored by the media. I would imagine if their headline were "Reform Alliance proposes a maximum LTV of 72%" they would have got more coverage.
If house prices fall by 30% from the current level.
The market value is €140k.
The fair value is €160k
They can borrow €144k
So 100% mortgages would be ok.
I like the idea. The Central Bank dictates when house prices are too high, and banks cut back lending. If house prices are too low, then banks become much looser.
There are lots of problems with this. How do you account for the higher prices in Dublin than in Leitrim?
