Brendan Burgess
Founder
- Messages
- 52,140
I have summarised my current thoughts on this proposal. These are still evolving.
Summary
· I agree in principle that borrowers have to be protected from engaging in reckless borrowing and lenders must be protected from engaging in reckless lending
· The proposed limit of 80% LTV with 15% exceptions seem about right.
· The proposed limit of 3.5 times earning with 20% exceptions seem about right.
· I agree that such protections will reduce the risk of boom and bust in the housing market which is good for everyone
- The existing system disadvantages borrowers who are naturally prudent as reckless borrowers can outbid them and push up prices. Forcing everyone to be prudent restores the balance.
· The key problem in this area at the moment is the shortage of housing for buyers and renters. These measures are likely to exacerbate the problem.
· The second key problem is the artificially high variable mortgage rate in Ireland. This should be a higher priority for the Central Bank to tackle
· The limits should not be set in stone. The Central Bank should be able to vary them according to the variations in the borrowing, banking and housing climate
· If limits are introduced, they should be phased in. A sudden jump from 10% to 20% deposit could be very disruptive and unfair to those who are almost at their 10% goal
· It will be very difficult for first time buyers to get on the housing ladder.
· First time buyers who qualify for the exceptions may benefit unfairly from these proposals, in that many of the competing buyers will be eliminated from the market.
· The LTV and LTI criteria should be integrated. A borrower should not be able to borrow 90% LTV and 3.5 times their salary. But if someone has a deposit of 30%, maybe they can borrow 4 times their salary. Likewise, someone who is borrowing just twice their salary, could be allowed a 100% mortgage.
· Likewise, if someone does borrow 90% LTV, their income should allow them to make capital payments to reduce the LTV to 80% within 5 years.
· Allowing exceptions to the rules is an excellent idea but there should be an overall limit of 20% exceptions and the banks should be allowed to determine whether to use it for the LTI or the LTV cases
· Mortgage applicants should be required to pay off all unsecured debt before applying for a mortgage. Otherwise people will build up their deposit while borrowing for cars and holidays. or Unsecured debt should be deducted from the deposit when calculating the LTV
· The new rules and uncertainty about getting mortgages will force borrowers to build up a deposit by artificial means
[FONT="]o [/FONT]People will avoid contributing to pension schemes
[FONT="]o [/FONT]People with existing mortgages in negative equity will not pay them down
[FONT="]o [/FONT]People will borrow to buy a car instead of using their savings
· The Central Bank must resist political pressure to introduce Mortgage Indemnity Guarantees
[FONT="]o [/FONT]It will be a big expense for the borrower
[FONT="]o [/FONT]It will provide no benefit to the borrower
[FONT="]o [/FONT]There is a significant risk that the insurer won’t be able to meet the claims in the event of the occurrence of the risk which is being insured
Summary
· I agree in principle that borrowers have to be protected from engaging in reckless borrowing and lenders must be protected from engaging in reckless lending
· The proposed limit of 80% LTV with 15% exceptions seem about right.
· The proposed limit of 3.5 times earning with 20% exceptions seem about right.
· I agree that such protections will reduce the risk of boom and bust in the housing market which is good for everyone
- The existing system disadvantages borrowers who are naturally prudent as reckless borrowers can outbid them and push up prices. Forcing everyone to be prudent restores the balance.
· The key problem in this area at the moment is the shortage of housing for buyers and renters. These measures are likely to exacerbate the problem.
· The second key problem is the artificially high variable mortgage rate in Ireland. This should be a higher priority for the Central Bank to tackle
· The limits should not be set in stone. The Central Bank should be able to vary them according to the variations in the borrowing, banking and housing climate
· If limits are introduced, they should be phased in. A sudden jump from 10% to 20% deposit could be very disruptive and unfair to those who are almost at their 10% goal
· It will be very difficult for first time buyers to get on the housing ladder.
· First time buyers who qualify for the exceptions may benefit unfairly from these proposals, in that many of the competing buyers will be eliminated from the market.
· The LTV and LTI criteria should be integrated. A borrower should not be able to borrow 90% LTV and 3.5 times their salary. But if someone has a deposit of 30%, maybe they can borrow 4 times their salary. Likewise, someone who is borrowing just twice their salary, could be allowed a 100% mortgage.
· Likewise, if someone does borrow 90% LTV, their income should allow them to make capital payments to reduce the LTV to 80% within 5 years.
· Allowing exceptions to the rules is an excellent idea but there should be an overall limit of 20% exceptions and the banks should be allowed to determine whether to use it for the LTI or the LTV cases
· Mortgage applicants should be required to pay off all unsecured debt before applying for a mortgage. Otherwise people will build up their deposit while borrowing for cars and holidays. or Unsecured debt should be deducted from the deposit when calculating the LTV
· The new rules and uncertainty about getting mortgages will force borrowers to build up a deposit by artificial means
[FONT="]o [/FONT]People will avoid contributing to pension schemes
[FONT="]o [/FONT]People with existing mortgages in negative equity will not pay them down
[FONT="]o [/FONT]People will borrow to buy a car instead of using their savings
· The Central Bank must resist political pressure to introduce Mortgage Indemnity Guarantees
[FONT="]o [/FONT]It will be a big expense for the borrower
[FONT="]o [/FONT]It will provide no benefit to the borrower
[FONT="]o [/FONT]There is a significant risk that the insurer won’t be able to meet the claims in the event of the occurrence of the risk which is being insured