How do we prevent the property market mistakes of the past.

It might be a bit early but I’d like to start a debate on how to prevent the construction mistakes of the past happening again – and by that I mean the hyper house price inflation we witnessed.
I believe that all involved before will regress to their old ways once the current correction bottoms out.

1. Where possible I’d like to see planning laws that preferred promoting business intentions rather than residential as I believe the availability of cheap premises will promote local business and create jobs that aren’t tied to construction. These were suffocated during the housing boom as people took the fast buck by selling to builders that converted premises to apartments.

2. I’d also like to see government legalisation to force the banks to keep a 90% (or perhaps even 80%) cap on LTV on residential property. Can that be done?. If not then perhaps the Government could tax any borrowing over 90% so much so that no one would contemplate it. They could do that as the mortgage amount borrowed already attracts stamp duty.

Any body else with ideas?

Re: How do we prevent the mistakes of the past.

A ban on 40-year mortgages.

This product was one of the more insidious developments of the property boom. Dressed up as the friendly bank & brokers doing the FTB a favour by helping them onto the property ladder, what these 40 year mortgages did in reality was facilitate FTBs in borrowing more than their earnings could justify, thereby condemning them to a lifetime of debt.
While the lenders attempted to justify this by pointing out that the borrower could switch to a different mortgage over time as their wages increase, they conveniently ignored the fact that the FTB would in all likelyhood also have to face the costs of raising a family in the not to distant future. Raising their repayment rate might not be an option when they have to pay for childminding & then school/college expenses, not to even mention contributing to a pension.
The fact is that a 40 year mortgage is basically a sub-prime product that the government should not permit.

Re: How do we prevent the mistakes of the past.

why not just put a ban on people making their own decisions for themselves altogether.

Re: How do we prevent the mistakes of the past.

The reintroduction of the recommendations of the Bacon Report would be a start, beginning with the abolition of tax relief on mortgage interest for investors/landlords

At the moment, investors get 46% tax relief on 100% of the mortgage interest while homeowners get 20% relief on a restricted amount.

Also the VAT laws previously facilited a situation where it was possible for landlords to reclaim the VAT on any properties purchased for investment and then repay that VAT over whatever term they wanted. So an investor buying a property for €340K could have reclaimed €40K of this back from the government in a VAT reclaim 2 months after he signed the contracts.

At the height of the boom we had first-time-buyers competing with investors for new properties and the potential homeowners had no chance of buying these properties.

I worked in an accountants which also had a mortgage brokers and it ****ed me off royally to see investors being approved for 100% mortgages on their 3rd or 4th properties when working couples had to stump up 8% of the price of the mortgage before trying to compete with the investors.

Re: How do we prevent the mistakes of the past.

MrMan said:

why not just put a ban on people making their own decisions for themselves altogether.

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No problem with people making their own decisions. Once they don't go looking for government bailouts if they make the wrong ones of course.

Re: How do we prevent the mistakes of the past.

shanegl said:

No problem with people making their own decisions. Once they don't go looking for government bailouts if they make the wrong ones of course.

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My sentiments exactly.

Seeing as John Hurley is one of the highest paid central bankers in the EU (may even be the highest paid) maybe its time he got off his backside and actually insist the central bank/Financial Regulator actually did something.

My 2c:

Impose a maximum mortgage term of 30 years
Impose stringent stress testing on borrowers in case interest rates increase (and make sure banks actually apply them)
Impose a maximum multiple of salary that a mortgage applicant can apply for (5x net annual earnings possibly)
Introduce maximum loan to value of a maximum of 90%
End and never restart tax systems which favour investors ahead of FTBs
Overhaul regulation involving estate agents/auctioneers etc

I'm sure there are more but I'm in a hurry out the door

EDIT: Almost forgot introduce manditory (and very harsh punishments) for rogue politicians/Estate Agents/Mortgage Brokers/Auctioneers who colude with each other and/or developers to shaft the ordinary folk of this country
Try get it into the thick skulls of people in this country that house prices way above historic norms (eg average house prices = 10x avergae wage) is not necessarily a good thing
Try to explain to people the difference between wealth and debt

Re: How do we prevent the mistakes of the past.

Interesting points. And so far they all require Government resolve. Do you think they can be trusted to even some of the 'right' things. I mean they made such easy money at every turn of the construction boom it is gonna be tempting for them to let it run again if it shows signs of taking off. It arguably kept FF in Government for 4 terms. Will they change.

Re: How do we prevent the mistakes of the past.

sfag said:

Interesting points. And so far they all require Government resolve. Do you think they can be trusted to even some of the 'right' things. I mean they made such easy money at every turn of the construction boom it is gonna be tempting for them to let it run again if it shows signs of taking off. It arguably kept FF in Government for 4 terms. Will they change.

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absolutely zero chance of any of what I said actually being implimented!!!

FF are the builders party and until the ordinary people of this country realise that they do not have the interests of the electorate at heart and only look after themselves then nothing will change.

The one good thing I hoped would come out of such a massive speculation fuelled asset bubble was that FF would be exposed for the filth that they are, I'm not holding my breath tho

No problem with people making their own decisions. Once they don't go looking for government bailouts if they make the wrong ones of course.

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Of course people should be responsible for their own actions, a bail out wasn't mentioned but restricting things to 30 year only and the like doesn't suit everyone.

Almost forgot introduce manditory (and very harsh punishments) for rogue politicians/Estate Agents/Mortgage Brokers/Auctioneers who colude with each other and/or developers to shaft the ordinary folk of this country

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Its them nasty FF/EA/bankers pulling the wool over the poor gullible joe public again, will they ever be taught a lesson?

FF are the builders party and until the ordinary people of this country realise that they do not have the interests of the electorate at heart and only look after themselves then nothing will change.

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Quite alot of 'ordinary' folk are builders and have done quite well out of the boom, but i'm sure when the opposition parties show that they are only in it for the electorate things will change. Just to re-cap are you saying FF are greedy and won't stop till the country is in ruins but their pockets are full and if so is there an alternative govt that you see as being a shing light in all this darkness?

I can't see anything 'wrong' with what's happened.
Just your classic boom and bust. It's just the way things are. People made hay while the Sun shone, and if they had any sense go out in time.
The government should keep its nose out of it.

MrMan said:

Its them nasty FF/EA/bankers pulling the wool over the poor gullible joe public again, will they ever be taught a lesson?

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Might be worth watching this so...how the banks never lose, 8pm channel 4:

leghorn said:

I can't see anything 'wrong' with what's happened.
Just your classic boom and bust. It's just the way things are. People made hay while the Sun shone, and if they had any sense go out in time.
The government should keep its nose out of it.

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You can't see anything wrong with what's happened.

I wonder will we (or have we) seen any of the following;

Ghost estates
Heavily indebted population
Negative equity
Poor planning
Poorly constructed properties
Bank failure/bail-out
Government (me and you) funded bail-out / stimulus package
Inflation
High cost of doing business
Unemployment, construction permeating to consumer etc.
Poorly focused education system


I'm sure there is a million more things...

Jethro Tull made a really good list;

Jethro Tull said:

Impose a maximum mortgage term of 30 years
Impose stringent stress testing on borrowers in case interest rates increase (and make sure banks actually apply them)
Impose a maximum multiple of salary that a mortgage applicant can apply for (5x net annual earnings possibly)
Introduce maximum loan to value of a maximum of 90%
End and never restart tax systems which favour investors ahead of FTBs
Overhaul regulation involving estate agents/auctioneers etc

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^^^ Sure we couldn't have that now could we. That'd be madness.

And sure the below advice is mad too, far too sensible;

DB74 said:

The reintroduction of the recommendations of the Bacon Report would be a start, beginning with the abolition of tax relief on mortgage interest for investors/landlords

At the moment, investors get 46% tax relief on 100% of the mortgage interest while homeowners get 20% relief on a restricted amount.

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MrMan said:

Of course people should be responsible for their own actions, a bail out wasn't mentioned but restricting things to 30 year only and the like doesn't suit everyone.

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If it doesn't suit you to buy a house on a 30yr or less mortgage, then you cant afford the house, why cant people work that out??
People weren't taking out 40yr mortgages because it suited them to be in debt for 40 years rather than 25 years, they were taking them out because house were/are hugely overpriced.

Jethro Tull's points seem like scene, i'd actually like for maximum lending to drop to 80%, i think it will install a saving ethic in many FTB's, that will brode them well through any future economic hard-times. But for 80% to be relistic, prices will have to continue dropping.

There were some advantages to the boom. The creation of wealth - shakey and unfounded as it may be - still made some of use weathy to buy tracts of property in other countries. Now as long as those properties dont go down as well .....

The disadvantage of the bust bit of the boom will be the lack of credit available to stimulate growth. That and the bankruptcies that will follow, The bust will end when the banks decide to loosen lup ending again.

Do you think it will be possible to have a housing market bust but still keep jobs in other sectors.
There was a jobs turn down with a 2 year freeze on recruitment in 2001 - 2002 and it in turn did not effect house prices.

sfag said:

The bust will end when the banks decide to loosen lup ending again.

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so we should go back to 100% lending on 6-8x two incomes??

That wont happen for a considerable time, defiantly not in the next 10 years, hopefully never. The house market will see some pick up (maybe in line with inflation) when house prices get to the level were a family or couple can buy a suitable house, not a 1 bed shoebox, on 5x one income with a 10-20% deposit.
This is still above tradition bank lending levels, but with lower interest rates, some allowances will be made.

MrMan said:

Of course people should be responsible for their own actions, a bail out wasn't mentioned but restricting things to 30 year only and the like doesn't suit everyone.

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historically it did suit (almost) everyone. Most people borrowed 3-5x their annual salary (1 person's salary not a couple's) and paid it back over 20 years.

Does the fact that people who earn some of the highest wages in the western world needed to borrow as high as 7-8x dual incomes, lie on their applications and repay over 40 years just to get on the bottom wrung of 'the ladder' (god i hate that phrase) not tell you anything.

In my head the alarm is blarring, house prices had gotten to idiotic levels and people couldn't actually afford them.

Allowing people to do the above was a mistake and the chickens are now coming home to roost. People are not all singing all dancing rational beings. That is exactly why we (alledgedly) have regulators. To protect consumers and ensure they are not taken for a ride. Because of size of transaction and potential long term effect on the consumer of course this means that financial institutions should be subjected to stricter regulation than umbrella manufacturers, say.

The people who's fuction this is have failed miserably over the last 10 years despite being some of the highest paid people in their field. If i remember correctly there are over a half dozen people in the central bank who earn more than Trichet and John Hurley may well be the highest paid central banker in the Eurozone

MrMan said:

Quite alot of 'ordinary' folk are builders and have done quite well out of the boom, Just to re-cap are you saying FF are greedy and won't stop till the country is in ruins but their pockets are full and if so is there an alternative govt that you see as being a shing light in all this darkness?

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How do you know this, are there statistics on it? The reality is that FF have done nothing to introduce land use and transport planning. Dublin is now given as an example to developing countries by the European Environment Agency as a model of bad planning..

Does the fact that people who earn some of the highest wages in the western world needed to borrow as high as 7-8x dual incomes, lie on their applications and repay over 40 years just to get on the bottom wrung of 'the ladder' (god i hate that phrase) not tell you anything.

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So are you saying that the norm was/is that people are on 40 year mortgages 8xincome and they all lie on applications, if that is true doesn't it say more about the particular people that do that. I think it does suit some to be able to use a 35 yr to start out with and can be reasonably reduced after the initial few years as new home owners. Taking a very black & white approach doesn't suit everyone and we should be wary of having blanket bans to make decisions for other people. By all means come down on the banks and brokers if they push through applications that aren't strong but there has to be a reasonable amount of responibility from adults when deciding to take on the huge debt that is a mortgage.

YOBR said:

How do you know this, are there statistics on it? The reality is that FF have done nothing to introduce land use and transport planning. Dublin is now given as an example to developing countries by the European Environment Agency as a model of bad planning..

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I don't have statistics to back up my claim that quite a number of ordinary folks are builders but talking to 100's of them over the last 10 years has done little to dissuade my opinion in that they have done very well for themselves out of the boom. Do you think differently?

Even if prices come down hugely, some people will not be able to afford a property, and will fall in the middle ground between social housing and private purchase.

To this end renting should be made a more attractive option - for both the landlord and the tenant.

* Renting Legislation & PTRB should be re-examined, and a more equitable and fast track system put in place to deal with problem tenants/landlords.

* Renters should receive equal tax relief on the money they pay to rent a property as a house buyer receives on the the money they pay to rent money to buy a property.

And for the property purchase market:

* All incentives to invest in property should be removed. Let the yield justify the investment.

* Planning, planning, planning. How long do we let the current corrupt/inequitable/unaccountable system of planning go on?

* Standards on new builds should be increased and enforced. No flood plains, better minimum sizes, better minimum noise insulation, better regulation of apartments/mgt companies. A lot of the property here is below par, and will be shown up in the flight to quality.

* John Hurley in "Does something" shocker. Something like regulate the banks and avoid their dangerous lending habits putting a large chunk of the economy in peril.

* Learn from our painful mistakes. If we want to prevent a repeat of the mistakes of the past then people should have to learn from those mistakes. A taxpayer funded bail-out, via one of the many ways currently being floated in the media, will simply reinforce the belief that property is a sacred cow in Ireland and people cannot lose. It will waste a lot of money before the inevitable happens anyway. Its re-arranging deckchairs on the titanic at this stage, but paying a lot of other peoples money to do so.

* Rewrite private person bankruptcy laws to cushion the coming pain. Our laws are draconian. Pain should be felt, but it should not destroy a persons life for 12+ years.