Brendan Burgess
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and[FONT="] the Bank states in its Paper that the proposed 3.5 times loan to income (LTI) ratio is calculated to generate a gross debt service ratio of about 30% and a net debt service ratio of about 40%.[FONT="][1][/FONT] The Bank therefore appears to be suggesting that mortgage servicing costs should not exceed 40% of take home pay and this is one of the rationales for its proposed LTI ratio. By the barometer of international standards, this might even be considered above an acceptable level, with a maximum of one-third of net pay being a frequently cited benchmark. However, further insurance costs that a borrower has to cover will further reduce disposable income for living expenses and accordingly may threaten the affordability of such mortgages in the long run, in addition to the other unsecured debts that a borrower will often have to service. [/FONT]
... it would seem that not everyone in Canada shares the same enthusiasm for Mortgage Insurance Schemes. A recent article in the Globe and Mail,[FONT="][1][/FONT] notes that a mortgage insurance framework is one of 75 action points that the Irish government is looking at to reinvigorate its construction industry. Commenting on the Canadian experience, it suggests that ‘the bank is required to buy the insurance but it makes the home buyer pay the premiums. The insurance pays the bank back if the home buyer defaults – the buyer loses their house, while the bank recoups everything that was owed on the mortgage. The insurance therefore encourages banks to lend bigger and riskier mortgages than they otherwise would.’
It also sounds some other warning notes that may be useful to the Committee in its deliberations. It suggests that Canada might benefit from lessons that Ireland has learned the hard way. These include ‘the dangers that stem from a lack of adequate data to study the housing market, the dangers of promoting the idea that home ownership is almost always preferable to renting, the dangers of relying on construction for economic growth and, importantly, the dangers of assuring people that a soft landing is on the horizon’.
To the surprise of the TDs and Senators, the following 4 speakers broadly welcomed the Central Bank's proposed 80% limit.
Thomas Byrne:
I got the impression from our discussions with the lenders and industry and from the media generally, that MII was a no brainer. It's interesting to get the opposite view.
Mortgage expert warns on ‘wrong medicine’ for housing market
His comments were broadly in line with the other speakers who also included Brendan Burgess of Askaboutmoney.com and Flac senior researcher, Paul Joyce.
... most speakers were in opposition to the latter but in favour of the Central Bank’s proposals.
The exception was Mr Deeter who opposed both measures, saying the 80% LTV proposals would lock people out of home ownership which would deny them a better financial future.
Peter Matthews:
A house in Dublin which rents for €1,500 a month costs €400,000. If you value this on a rental yield basis, it is worth just €270,000 ( 270k@7% = €1,500 a month)
Therefore house prices are overvalued by 30% and will fall.
The problem is too much credit.
(He made a long speech so the above is only my summary. I presume he supports the minimum 20% deposit if he thinks house prices are overvalued by 30%)
It will be difficult for FTBs to save up for a deposit of 20%, and so they should be allowed to save through their pension fund for the deposit. The tax-free lump sum on retirement would be adjusted for any amount taken early for the purchase of a home.
So most of the people before the Committee were in favour of the proposal and yet the headline on the IT's article focuses on the person against it Karl Deeter:
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