Central Bank: LTI to increase to 4 times income for FTBs, LTV to increase to 90% for movers

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Sunny

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Moderator's note: The early posts in this thread are from before the Central Bank's press release, and the early newspaper articles got some of the details wrong. The confirmed details of the changes are given in this article:
www.irishtimes.com

Central Bank defends inflationary easing of mortgage rules amid cost-of-living crisis

First-time buyers will be allowed to borrow more based on their income
www.irishtimes.com www.irishtimes.com


House prices finally look they might be slowing down but still at financial crisis levels so the Central Bank decide now is the time to add some fuel to the market..... I agree that the rules need refining but the timing sucks..

www.independent.ie

Central Bank set to relax mortgage lending rules

STRICT lending rules for those taking out a mortgage are to be eased.
www.independent.ie www.independent.ie
 
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Hi Sunny, I'm not sure in practice that this move will make that much of a difference to peoples ability to buy, so may not drive significant further price inflation.

Buyers recently have been more constrained by proving affordability to the lenders rather than the Central Bank limits.
1) Proof that they can cover the increased repayments due to the fixed rates available in the market increasing.
2) Over and above that proof that they can meet the minimum income thresholds. These have gone up by around 20% since inflation kicked in.

The Loan to Income ratio is a very crude tool and also had the effect of trapping people into paying rents higher than their mortgage repayments. The Central Bank has probably been a significant contributor to the rental crisis by imposing one of the tightest income to loan thresholds in Europe.

This step should be welcomed in my view, bringing us more into line with the rest of Europe. Although for the reasons listed above it may be too little too late for many renters.

The core problem we face in the Irish housing market is not one of high house prices, but of low affordability which may not be the same thing.
 
Completely the right thing to do......all supply demand pricing pressure was being channeled into rents....as there was no "Rent-to-Income" caps put in place......bonkers strategy........supply-demand pricing pressure should be channeled into where its needed which is the underlying house prices....such that housing construction output responded to excess prices.

We've most desperately needed more housing in Ireland for years.......yet construction capacity as been dedicated to commerical real estate.....why? Cause its the highest and best use of capital/labor as signalled by pricing.

Its about time that the highest best use of construction capital and labor was dedicated to HOUSE (not apt) building.

People seem confused around whats going on in Ireland.....whats been happening is that developers under current building standards have struggled to deliver housing at an acceptable margin (~20%) such that their time/efforts/risk was adequately compensated. I'm sure some lunatics will come in here now and argue that they are making loads of money already......really.....then why arent they building 30k, 40k, 50k houses a year then if its so bloody profitable? They arent, cause it isnt.

I think we might finally have the right mix in place - HTB, First Homes Shared Equity & 4x LTI rules......that will ensure a 15-20% margin on 3-Bed semi in Great Dublin Area.....moves into something approaching a certainty for a developer.....such that they can look out 3-5 years and start making investments now to scale up production.

I applaud this move.
 
Cue @Purple rightly interjecting to ask about the cost side of the housing equation and the scope for radical innovations in building methods, materials, building regulations.

We don't still build commercial real estate the way we did 50 years ago, surely?
 
MugsGame said:
Cue @Purple rightly interjecting to ask about the cost side of the housing equation and the scope for radical innovations in building methods, materials, building regulations.
Click to expand...

When there's is a tonne of money to be made.......in this case by innovating on the cost side of building houses......my simple question is if thats the case..........then why hasn't it happened yet? If its so obviously there.

Smart, greedy, industrious people aren't in the habit of leaving millions (billions?) of euro lying around on building sites.

More can be done on this side, I'm sure, but there are those for whom it seems that magically 30% of a new build house's costs are going to vanish into thin air by some adoption of some new building technique.......it resembles a desperate search for the Loch Ness monster........very hard to find, cause it just doesn't exist.
 
It's better than nothing but in my view the whole LTI concept should have been ditched in favour of limits on debt service to income as is the case in nearly all EU countries that have such rules.

I did a long post on this here if anyone is interested

Makhlouf had the opportunity to hit the reset button as this as the policy was introduced eight years and two governors ago. It's a pity he didn't and I suspect things won't change much while he is still governor.
 
letitroll said:
When there's is a tonne of money to be made.......in this case by innovating on the cost side of building houses......my simple question is if thats the case..........then why hasn't it happened yet? If its so obviously there.

Smart, greedy, industrious people aren't in the habit of leaving millions (billions?) of euro lying around on building sites.
Click to expand...
Because it's extremely expensive to set up and while the people building the houses may be greedy (as greedy as everyone else) they aren't that industrious or smart and there's no imperative to change.. Change is hard and painful, people don't change in a sudden and comprehensive way unless they have to.

There are some changes taking place though. There is a considerable amount of modular and factor build capacity coming on stream.
letitroll said:
More can be done on this side, I'm sure, but there are those for whom it seems that magically 30% of a new build house's costs are going to vanish into thin air by some adoption of some new building technique.......it resembles a desperate search for the Loch Ness monster........very hard to find, cause it just doesn't exist.
Click to expand...
30% of building materials that are delivered to building sites end up in landfill. Factory build homes generate low single digit waste of similar materials. That's just one area in which they save money. Labour is reduced and de-skilled and therefore is cheaper. Traffic to and from construction sites is reduced by 80%.

Imagine if you ordered a Toyota and a few weeks later a chassis was delivered to your house. Then the rest of the bits were delivered, bit by bit. The assembly of your car would take place in your driveway with continuous delays because bits weren't there etc. Quality Control would be some guy rocking up every few days and having a nosy for a few minutes. Just imagine how expensive that would be and how bad the quality would be. That's how we build homes.
 
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The 3.5 LTI is extremely crude. I have no issue with it being amended or even ditched. I do question why now though? People have been asking for this for years but we're told that it stops excessive lending and credit bubbles and it wasn't for changing.
We still annual house inflation of over 10%. The first sign of a slowdown and rising interest rates, the central bank have decided that now is time to ease it. I am currently looking to buy in Dublin and the second hand market is way different to what it was three months ago. There is significant cooling.
This just smacks of yet more State interference in the housing market rather than economic policy.
 
The problem we have is
1) House prices are too high for people on good salaries
yet, at the same time,
2) House prices are not high enough to make it profitable to build loads of houses.

The solution is to bring down the cost of building new houses.

Giving people unsustainable mortgages will just push up the prices of houses further and leave them no better off.

There was some merit in the argument that LTI levels were set at a time of high interest rates and that they should be brought down when interest rates fell. But now that interest rates are rising again, it seems wrong allow people borrow 4 times their joint incomes.

Brendan
 
Purple said:
Because it's extremely expensive to set up and while the people building the houses may be greedy (as greedy as everyone else) they aren't that industrious or smart and there's no imperative to change.. Change is hard and painful, people don't change in a sudden and comprehensive way unless they have to.

There are some changes taking place though. There is a considerable amount of modular and factor build capacity coming on stream.

30% of building materials that are delivered to building sites end up in landfill. Factory build homes generate low single digit waste of similar materials. That's just one area in which they save money. Labour is reduced and de-skilled and therefore is cheaper. Traffic to and from construction sites is reduced by 80%.

Imagine if you ordered a Toyota and a few weeks later a chassis was delivered to your house. Then the rest of the bits were delivered, bit by bit. The assembly of your car would take place in your driveway with continuous delays because bits weren't there etc. Quality Control would be some guy rocking up every few days and having a nosy for a few minutes. Just imagine how expensive that would be and how bad the quality would be. That's how we build homes.
Click to expand...
its a good analogy to be fair, i always watch the grand design episodes with factory built houses with great interest, it certainly looks a far more sensible option !
 
letitroll said:
Completely the right thing to do......all supply demand pricing pressure was being channeled into rents....as there was no "Rent-to-Income" caps put in place......bonkers strategy........supply-demand pricing pressure should be channeled into where its needed which is the underlying house prices....such that housing construction output responded to excess prices.

We've most desperately needed more housing in Ireland for years.......yet construction capacity as been dedicated to commerical real estate.....why? Cause its the highest and best use of capital/labor as signalled by pricing.

Its about time that the highest best use of construction capital and labor was dedicated to HOUSE (not apt) building.

People seem confused around whats going on in Ireland.....whats been happening is that developers under current building standards have struggled to deliver housing at an acceptable margin (~20%) such that their time/efforts/risk was adequately compensated. I'm sure some lunatics will come in here now and argue that they are making loads of money already......really.....then why arent they building 30k, 40k, 50k houses a year then if its so bloody profitable? They arent, cause it isnt.

I think we might finally have the right mix in place - HTB, First Homes Shared Equity & 4x LTI rules......that will ensure a 15-20% margin on 3-Bed semi in Great Dublin Area.....moves into something approaching a certainty for a developer.....such that they can look out 3-5 years and start making investments now to scale up production.

I applaud this move.
Click to expand...
If it isn't profitable then where are the estates that have houses sitting unsold? As far as I can see it's a sellers market (or was until very recently). All houses are being bought.

There seems to be a lot of competition for the existing housing stock. How is adding more competition going to help things. Surely it can only fuel price increases?

I can see why the government would want to give the illusion that younger people will now be able to get more credit and buy a house... but what's in it for the central bank? Why are they acting?
 
PGF2016 said:
what's in it for the central bank? Why are they acting?
Click to expand...

Let's be clear, the Central Bank may be misguided in doing this, but they do not have an ulterior motive. There is nothing "in it for the Central Bank."

They have all the data on home loans and on banking stability and have concluded that it's ok to marginally raise the Loan to Income while leaving the Loan to Value unchanged. I think that they are misguided, but it's a judgement they have made.

My main concern is that it will distract people from the real issue - why well paid people can't afford to buy houses at prices which are not profitable enough to increase supply.

Brendan
 
RichieRich said:
Anyone know when the changes will take effect?

Thanks
Click to expand...
Almost certainly 1 January 2023. The exemptions are granted on a calendar year basis. But do wait for the announcement first.

Brendan Burgess said:
The solution is to bring down the cost of building new houses.
Click to expand...
This is the "magic wand" solution that everyone on the political spectrum from right to left likes to wave around.


While I don't disagree that the supply side needs fixing, it's naive to think that the demand side wasn't suppressed below levels that were prudent.
 
www.irishtimes.com

Central Bank defends inflationary easing of mortgage rules amid cost-of-living crisis

First-time buyers will be allowed to borrow more based on their income
www.irishtimes.com www.irishtimes.com
  • 4x income limit is for First-Time Buyers only
    • For movers it stays at 3.5x income
  • LTV limit for movers increased from 80% to 90%
  • Changes take effect from January
The bank has also decided to broaden its definition of a first-time buyer to include borrowers who are separated or divorced or have undergone insolvency or bankruptcy and no longer have an interest in their previous property.
Click to expand...

And from the Indo:
And a first-time buyer who is getting a top-up loan or re-mortgage with an increase in the principal may be considered “first time”, provided the property remains their primary home.
Click to expand...
 
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Seems a bit odd that the loosening of the LTI limits is for FTBs only. I wonder what is the thinking on this one?

Also, I'm surprised to see the LTV limit for S&SBs being increased. Again, I would be interested to understand the thinking here.
 
Brendan Burgess said:
The problem we have is
1) House prices are too high for people on good salaries
yet, at the same time,
2) House prices are not high enough to make it profitable to build loads of houses.

The solution is to bring down the cost of building new houses.

Giving people unsustainable mortgages will just push up the prices of houses further and leave them no better off.

There was some merit in the argument that LTI levels were set at a time of high interest rates and that they should be brought down when interest rates fell. But now that interest rates are rising again, it seems wrong allow people borrow 4 times their joint incomes.

Brendan
Click to expand...

Hi Brendan, I'm not sure it is only reducing the cost of building houses, Ronan Lyons published analysis over the summer showing a 40% reduction in building costs would be required to stimulate the required house building to meet demand. There are savings to be made, but 40% seems unachievable to me, which is why some price inflation may also also needed.

Recent analysis moneysherpa completed, published in the Indo also this summer, showed that the average renting household would save €1,000 by buying and fixing on a long term mortgage rate. These households can clearly afford a long term fixed rate as they are paying monthly rents in excess of their equivalent mortgage. More importantly still they would be better off, more secure and building their household wealth by buying.

Yes more renters entering the market will raise prices, but if more people can afford higher prices due to more credit availability then the net result will be more houses being built as developers can make a profit.

The lending rules are very different than back in 2008, the 3.5 X cap was one of the strictest in Europe and 4 X just brings us into line with others. I can't see it creating a 2008 type credit bubble in anyway.

All of which begs the question why did we have a limit that created a bubble in the rental market and also reduced housing supply in the first place?
 
I don't really get the logic of this announcement to be honest. FTB's are already in receipt of significant state intervention. Why limit the change to them? The change in LTV for movers also looks very odd as it is years too late. I don't understand why they didn't adjust the LTI for everyone but leave the LTV's in place.

You are going to have first time buyers basically having access to help to buy, first home scheme and now being able to borrow 4 times their income. Yes that it will increase the price of house builds which MIGHT make it more attractive for developers but you are manipulating the market. Eventually the music must stop.

Those first time buyers will eventually need to move as their family grows. They are now in a position where they can only borrow 3.5 times their income with no schemes to help them. Sure they will only need a 10% deposit but that does nothing to help them when the house they are looking to buy is over 500k and they are going to a bank with a 50k deposit and looking for a 450k mortgage which means they need a joint salary of at least 120k.

Meanwhile the change to LTV makes no difference for the majority of movers who at this stage have built up significant equity in their house. We have had annual house inflation of over 10% for the past few years now.

This smacks of a policy that is designed to keep the price of new builds high to try and make it worth developers while to build. Is this really the best way to do it? I don't see how these changes do anything to protect the credit quality of banks balance sheets which we were told is the whole point of it.
 
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