Confusion in the media around the Central Bank rules

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Gordon Gekko

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Colm McCarthy is saying that the €20k grant helps people on €171k to buy a €600k property.

He is wrong.

The deposit is 10% of €220k and 20% of €380k, a total of €98k. If the State gives them €20k, they pony up €78k.

€502k divided by 3.5 is €143k.

These people are not "mega wealthy".
 
I'm not with you.

How does the proposed tax rebate not "help" a FTB with an income of €171k buy a new build property for €600k?

Average earnings last year were around €28,500 so a household income of €143,000 is way, way above average.

Income and wealth are obviously totally different things. The wealthiest people I know actually have relatively low incomes.
 
Did not see this article but surely if someone on €143,000 can buy a house for €600,000 so can some one on €171,000 but I presume that was not the point being made.

Is the bigger point that this new FTB grant can be claimed by a couple clearing €93,000 after tax per annum.

So therefore it gives them €20,000, therefore it helps them.

I'd imagine that what people view of "mega wealthy" depends on your point of view. Some people might consider "mega wealth" to be a couple who have €78k in savings, others a couple who own there own home and have savings totalling €500k, others might say it's €1m.

The reality is people often confuse wealth with income the couple above clearing €93,000 could have bought their house in 2008 and be in negative equity so have no wealth at all despite earning significant amounts.

Rant over back to doing tax returns.

PS if anyone on here has not brought their records into their accountants, no more posting til that's done :)
 
Someone on €1b a year can also get the €20k. The point is that McCarthy was talking rubbish.

The idea that someone on €71,500 per annum is "wealthy" or shouldn't get any help is crazy. That is a productive person, but no, like everything in this wonderful country, let's bend over backwards for the scroungers and the wasters.
 
Sarenco said:
Average earnings last year were around €28,500 so a household income of €143,000 is way, way above average.

Income and wealth are obviously totally different things. The wealthiest people I know actually have relatively low incomes.
Click to expand...

Averages earnings = 36k

Averages earnings in industry = 45k

Average incomes = data not easy to get.
 
Gordon

Please tell us exactly what Colm McCarthy said. Did he give an example?

I don't think it's fair to say someone is wrong, without telling us exactly what they said.

Please also provide a link to the article.

Brendan
 
As far as I know, McCarthy is completely opposed to this First Time Buyers' Grant. I don't know if any independent economist does support it. That doesn't mean he is right or wrong.

I am not opposed to it, probably because as I see it as a refund of the 12% VAT on the sale price of a new house.

Those who support it, often say that it should not be paid to First Time Buyers who are buying a house for €600k. (In practice, it probably doesn't matter, as I doubt very few FTBs buy a house for €600k with an 80% mortgage.)

If a FTB does want to buy a house for €600k, they have to borrow a minimum of 80% or €480k.
To buy this, they must have a combined salary of at least €137k ( 3.5 times 137 = €480k)

So, I think, that the minimum salary required to buy a €600k house is €137k.

There is no maximum salary to which this applies. So it helps anyone on any salary. Especially if they don't have the deposit.

It helps people on €137k
It helps people on €143k
It helps people on €171k.

€171k x 3.5 = €600k. That €171k figure is not relevant. So if Colm McCarthy used it, he got a minor calculation wrong.

But that does not in any way invalidate his argument. It certainly does not merit a headline "Colm McCarthy wrong about the €600k property."

Gordon Gekko said:
The deposit is 10% of €220k and 20% of €380k, a total of €98k. If the State gives them €20k, they pony up €78k.
Click to expand...

If they are on high incomes, the banks will probably give them a 90% mortgage.
So they can get a mortgage of €540k
They get €20k from the state, so they need to borrow €520k.
So they can get this grant with a salary of €148k.

If I have got my calculations wrong, it does not merit a headline "Brendan Burgess is wrong about €600k properties"

Likewise, if you have got your calculations wrong, it does not merit a headline "Gordon is wrong about €600k properties"

Brendan
 
I thought McCarthy was excellent on Claire Byrne last night. Coveney was clearly uncomfortable when McCarthy spoke and tried to interrupt and dragged him off on tangents as much as possible
 
That is an excellent article.

I had not thought of this bit, although it's obvious in retrospect:

"The borrower, all the way up to €220,000, needs real money equal to just 3.2pc of the purchase price. The 100pc mortgage is making a stealthy comeback."

Another excellent point:

"Does the Government sincerely wish to encourage new construction in Mayo, to compete with the 950 homes currently on offer, according to daft.ie, at €150,000 and below?"

This calculation is wrong

"To qualify for a mortgage on a €600,000 home, the borrower would need, under the Central Bank rules, an income of €171,000 per annum."

The correct figure is €148k, I think....

But the conclusions are spot on:

"Even for a joint income, this is at the upper limit of the Irish income distribution. For a single income, this is a grant to the very highest earners in the country.

Fianna Fail TD Barry Cowen has objected to this measure on the grounds that it is a 'mansion grant'. Sinn Fein's Peadar Toibin has claimed that it is designed for the extravagant prices of new homes in south County Dublin. My concern is more straightforward: the mere mention, by the Government, of grant-aid to buyers at up to €600,000 a pop feeds the inflationary psychology"
 
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Funny, my view was that he was talking rubbish about 97% LTVs when the 5% from the State is cash and the 2% from a few banks is cash.

More spin to inflate his argument.

By the way, I don't disagree with much of what he said.
 
Gordon Gekko said:
By the way, I don't disagree with much of what he said.
Click to expand...

Then I suggest you edit the title of the post:

"Colm McCarthy is wrong about the €600k property"

I was emailing him to correct his "typo" when I realised how truly insignificant it was...

A couple on €137k can borrow €480k
They get €20k from the government
They have €100k cash.
They buy a house for €600k.

The point of this was to help people get on the housing ladder.

A couple with €100k cash and €137k in salary don't need help from the taxpayer.

Brendan
 
"The borrower, all the way up to €220,000, needs real money equal to just 3.2pc of the purchase price. The 100pc mortgage is making a stealthy comeback."

Is that not correct?

Other than the fact that they really need only 3.2% up to €400k, as it's easy enough to get a 90% mortgage with a high income.

Brendan
 
What is "real money"?

Since when do the banks allow their 2% incentives to form part of a borrower's deposit?

What is the 5% tax rebate, "fake money"?
 
His point was that a borrower can buy a house with only 3.2% of the purchase price.

That is actually correct.
As he explains in the article:

"This cash-back goes towards the deposit if the borrower can do some juggling for a few weeks (max out the credit card or borrow from mum)"

Brendan
 
Protocol said:
Averages earnings = 36k

Averages earnings in industry = 45k

Average incomes = data not easy to get.
Click to expand...

Yes and median earnings were estimated (by the CSO) at €28,500 last year for all those at work. The point is that a FTB (single or couple) earning €140k are way, way up the income distribution scale.

In my opinion, it is grossly inequitable to use public funds to subsidise the development or purchase of private assets and it simply becomes egregious at these income levels.

Why should a couple earning €40k subsidise a couple earning €140k?

The whole rebate scheme is regressive, pro-cyclical and economically inefficient.
 
"To qualify for a mortgage on a €600,000 home, the borrower would need, under the Central Bank rules, an income of €171,000 per annum. Even for a joint income, this is at the upper limit of the Irish income distribution. For a single income, this is a grant to the very highest earners in the country."

I don't think his calculations are wrong, I took his point to relate to the incentives being introduced to circumvent those rules.
 
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