"Central Bank urged to row back on proposed mortgage rules "

[Brendan Burgess]

The Central Bank needs to assess this very carefully. They have serious creditability issues at present. A complete climb down will cause them a lot of damage. I think an insurance scheme will be just as damaging.

Hi Stephen

I agree that the Central Bank has credibility issues at the moment, but that is not the issue here.

They have asked for submissions. If they ignore them and go ahead as planned, they will be accused of being inflexible.

I think that they will take the submissions on board. They will start with a 90% LTV and move towards 80% over a few years.

They will probably keep the 90% for FTBs, or reduce it to 85%.

Brendan

 

[44brendan]

To get the borrower to insure the banks risk will be just as reckless.

This is a strong contention Steven and I would like to understand why you believe it to be so!! Reckless lending is not based on LTV. In fact most corporate loans are issued on an unsecured basis!! I have operated in a credit function in Banks, both in Ireland and abroad and have certainly come across many cases of reckless lending. These cases were not due to the absence of good credit structures or policies but due to an overriding of the system by management in an effort to either grow the lending book or to favour certain clients.
MII is not a substitute for proper levels of dilegence in assessing loans nor is LTV limitations. In the larger scheme of things application of an 80% LTV limit will matter not a whit should banks fail to act with due diligence in the future.
The CB completely took its' eye off the ball prior to the the most recent crisis and what is required is proper oversight and enforcement of bank lending practise. If this is exercised on a consistent basis, it will not necessarily stop individual banks from transgressing, but it will ensure that poor practises are identified at an early stage and facilitate appropraite action.

 

[Gerry Canning]

Problems @20% , Problems @10% Problems @supply Problems @ demand. Problems with Insuring Loans.
These are hard circles to square.

1. @ 10% = a good deposit.
2. If rent (lost money) is less than a 90% Mortgage ,then Mortgage starts to be a good option.
3. If ability to repay up to medium term is shown then give the Mortgage.
4. Insuring Banks is a bad idea because they will reparcel debt and another AIG arises.
Very inclined to start with affordability and then add in LTV .
I think Central Bank are trying to get a reasonable solution at an unreasonable time.

 

[Delboy]

The Irish Times today

So much for the CB being independent!!!
http://www.irishtimes.com/business/...ral-bank-mortgage-rules-going-ahead-1.2031847

Don’t bet your house on Central Bank mortgage rules going ahead
Opinion: regulator cannot simply ignore Government views on 20% deposit rule
....A fall in house prices wouldn’t be helpful either, given the implications of negative equity and mortgage arrears.

The Independent of course are all over it...with Charley Weston (Specialist Business Reporter of the Year!) leading the charge
Only rich will be able to buy homes, warn finance chiefs

House buying will become the preserve of the wealthy and those on high incomes if restrictions on mortgages proposed by the Central Bank are introduced, the Department of Finance said in a submission.

No one dares mention getting building costs down, lowering the cost of housing to free up money for spending in other areas of the economy (or even freeing up jobs by allowing couples to keep 1 person at home with the kids).

It's absolutely depressing to live in this country and see how we just go round in a never ending circle, no matter how many times we screw things up...rinse and repeat

 

[44brendan]

No one dares mention getting building costs down, lowering the cost of housing to free up money for spending in other areas of the economy (or even freeing up jobs by allowing couples to keep 1 person at home with the kids).

It's absolutely depressing to live in this country and see how we just go round in a never ending circle, no matter how many times we screw things up...rinse and repeat

There is no direct correlation between the CB proposed guidelines and building costs. In fact there is no indication by any interested party that building costs are currently inflated. Brendan B has a very detailed posting on the current cost of housing in Ireland and a significant element of these costs are due to tax and new legislation. However these issues are unrelated to the CB who have a duty to ensure that banks lend prudently!
I think most knowledgeable observers will agree that Patrick Honohan is a capable CB Governor and certainly not a pawn of any Government. He has proposed certain changes to the macro prudential lending rules and as per normal practise all interested parties have been asked to submit their opinions.
Whatever the final outcome is of this process I an confident that the Governor will need to be satisfied that the new rules are duly prudential without being overly harsh to any segment of borrowers.
Repetition of past mistakes is not unique to this country nor to the political arena. There is absolutely no doubt that there will in time be another banking crisis in Ireland. However I would have full confidence that the current CB Governor is both capable and willing to take whatever action he deems necessary to postpone that inevitability during his tenure.

 

[Protocol]

There is no direct correlation between the CB proposed guidelines and building costs. In fact there is no indication by any interested party that building costs are currently inflated.

No, building costs may not be inflated, but land costs are.

And why are developers willing to pay so much for land?

Because of high house selling prices.

 

[Delboy]

There is no direct correlation between the CB proposed guidelines and building costs. In fact there is no indication by any interested party that building costs are currently inflated.

???? The price of sites isn't inflated, the tax take isn't inflated, the recent changes made on sign-offs etc which added several more k to even an extension.....!!!!

This is Ireland, of course it's all over inflated

 

[Dermot]

We can debate all we like about about what deposits should be and what the criteria should be used for LTV. We can have papers from learned economists and other interest groups but the fundamental question is how can supply of houses be increased where there is a serious pent up demand.

There seems to be an irrational amount of effort being put into sorting out the deposit and LTV formula when the real issue is supply in areas like Dublin.

I just think that that some of the new building regulations which will greatly add to costs of houses are coming in at the wrong time for new buyers. I do not know the cost benefit analysis of them.

I do not have a workable solution as to how to keep building costs down but as sure as night follows day etc that as soon as money comes freely available house prices will jump, site costs will follow, labour costs will follow, builders margins will get greater and we will be back on the merry go round again.
Whatever the solution is it needs to be sustainable and not like before. There will always be people who will not be happy but for the future we need reasonably priced houses and apartments in the right areas.
We do not ever want to see this boom bust building situation again.

 

[serotoninsid]

There seems to be an irrational amount of effort being put into sorting out the deposit and LTV formula when the real issue is supply in areas like Dublin.

Exactly. This measure has absolutely nothing to do with the (Dublin) supply issue. That has to be solved by separate measures (and most likely with no quick fix).

Taking that out of the equation (and whatever rent levels its currently leading to in Dublin), this measure is a sound and prudent one for what it's designed to do - in the long term interests of the country (all of the country!).

 

[Brendan Burgess]

There is no direct correlation between the CB proposed guidelines and building costs.

Hi brendan

This is the big point which you are missing.

Of course there is a link.

Read Ronan Lyons's submission.

If you put more credit into the system, prices will rise. If you restrict credit, prices will fall.

If prices fall, land costs and building costs will fall.

That is why I support the proposed restrictions.

Brendan

 

[44brendan]

Brendan we are not in broad disagreement on this issue.

Ronan Lyons submission is based on the presumption of limited housing availability and more extensive access to borrowed funds. In this scenario there is only one outcome and that is the continued increase in property prices.
I do support CB restrictions on credit availability. However those restrictions must be fair and continue to allow access to funds to those with adequate affordability.
If I go back to your previous post on building costs, you made the case that in the current climate it would be difficult for a developer to build and sell houses at a reasonable profit margin (even taking reasonable building costs and relatively low site costs into account).
The main restriction at the moment is lack of available housing stock not unaffordable housing. The land banks are there, presumably the developers are there but still the level of new developments in a thriving Dublin market are extremely sparse.

If those in rented accomodation cannot buy houses those wishing to enter the rented market will be restricted further and this in turn will lead to increases in rents.
There is no simple solution to this problem, but it is clear that there is an urgent need to provide more housing stock and in order to do this, there must be a profit motivation to banks and developers.
House prices will need to settle at a level where there is adequate motivation to developers to take the risks involved to provide new housing stock. The costs are obviously going to be higher in Dublin than the rest of the country.
"If you restrict credit prices will fall". This corelation is overly simplistic as it assumes a thriving market with ample availabe stock. Even with restricted credit it will be some time before this will have any impact on the Dublin market.

 

[Dr.Debt]

Its been said over and over again. Let market forces do their work !!

Yes, allow the banks to implement the 80% LTV maximum. This is prudent banking policy and should be done.

This will put pressure on the rental market as many buyers are then unable to purchase houses. As rents rise only the better-off can afford to rent.

As the rental market becomes "unworkable" for weaker earners, many will make the decision to relocate. This will result in a tighter labour market in Dublin. In my view this will push up wages and salaries in the Dublin area and this is what is needed.

As the labour market contracts, some employers will also seek to relocate "the work" else where, and ideally to places like Kildare , Meath etc

The formula that we are trying to hatch in other parts of this thread is completely unrealistic. You cannot expect to build lots of cheap housing in a booming city. Booming cities are necessarily expensive due to the scarcity of land and due to the supply / demand for same. People will need to realise that if you want to live in a prime part of Dublin, then you may have to settle for a modest apartment instead of a spacious house. Its not realistic to expect the impossible.

Whatever policy finally emerges, we are sure about one thing in the short to medium term - too many buyers chasing too few properties in Dublin. At least by restricting the availability of mortgages, house prices will be held in check. By allowing FTBs to access 90% financing will only drive prices up and still there wont be enough properties to go around.

We need high level policy making here, diversion of jobs to cheaper areas, incentivising pensioners to move out and down etc etc

 

[Brendan Burgess]

Houses in Dublin may be overpriced relative to incomes and other measures. They are not overpriced relative to the costs of building.

If we increase credit, house prices will rise. To they become more overpriced but maybe we will build more.

If we restrict credit, house prices will fall. If they fall, we will build less.

The solution is not to increase credit but to reduce the costs of building.

 

[Dr.Debt]

I disagree fundamentally that reduction in credit will cause prices to fall. I believe that a reduction in credit will cause houses to stabalise (in Dublin)

Its very hard to talk about a reduction in the cost of building after just implementing a raft of new building regulations earlier this year that necessitates building cost to rise.(not fall)The fact remains that it is very difficult (at current prices) for a developer to build new houses anywhere inside the M50, at a profit. Yes we could reduce vat and government levies to try and reduce cost however this will have no affect unless you increase rapidly the amount of building land availability at the same time.

 

[Delboy]

As the rental market becomes "unworkable" for weaker earners, many will make the decision to relocate. This will result in a tighter labour market in Dublin. In my view this will push up wages and salaries in the Dublin area and this is what is needed.

Pushing up wages to chase increasing rents/house prices is what made us uncompetitive and helped lead to the last 8 years of pay freezes,cuts,redundancies etc.

Many people will not have to relocate from between the Canals as they have their rent paid by the Taxpayer- this will eventually force the local authorities to pay more rent to landlords.

Yes, many workers will have to relocate and this will increase commuting times, put pressure on infrastructure, see rising costs of housing in the suburbs etc

Just another recipe for a race to Bust II

 

[serotoninsid]

I disagree fundamentally that reduction in credit will cause prices to fall.

I don't think there is any expectation that prices will fall in Dublin - on the basis of one single measure. You would hope that this is seen as one measure that can be implemented contributing towards an overall policy relevant to the property market, housing and the aspect of banking relevant to this area.


The point is that this is a function of preventing another credit related bubble. Rising prices as a consequence of supply constraints is an entirely different matter.

 

[Bronte]

Patrick Honohan was appointed Governor on 26th Sept 2009 and since then he has been dealing with more urgent issues such as bank recapitalisation.

Mortgage restrictions is the sort of important but not urgent issue.

But it is over 5 years since his appointment. In any case it is something the CB should have had in place years ago. We wouldn't have needed bank recapitalisation if we had prudent lending originally.

 

[Brendan Burgess]

I disagree fundamentally that reduction in credit will cause prices to fall. I believe that a reduction in credit will cause houses to stabalise (in Dublin)

.

Hi Dr Debt

What I mean by that is, "all other things being equal, increases in credit cause house prices to rise and credit restrictions cause house prices to fall"

I am not making a prediction about house prices in Dublin.

What I am saying is that "restricting credit will cause house prices to be lower than they would otherwise be if there were no restrictions"

 

[PadKiss]

Hi all and Happy New Year to all readers.
I have been following with interest the debate re the restrictions proposed by the Central Bank on lending in relation to mortgages and I find it incredulous the reaction from our lenders but should we be surprised.


Here is an idea that they will find hard to counter


'Central Bank' will allow 90 or even 95% mortgages provided same are arranged with a full term fixed rate attaching thereby meaning the loan can be stressed at the fixed rate chosen at the beginning of the mortgage. No argument can be put forward against this by the Banks other than the veiled one that exists at all times namely profit excesses for the lenders. There will be sufficient profit to be gained from a current fixed rate of 3.85% for 30 years (current rate in USA) I believe this is the basis under which Mr. Honohan should adopt his proposals to counter the resistance from Connected parties. Just my thoughts Padraic

 

[Gerry Canning]

Hi all and Happy New Year to all readers.
I have been following with interest the debate re the restrictions proposed by the Central Bank on lending in relation to mortgages and I find it incredulous the reaction from our lenders but should we be surprised.


Here is an idea that they will find hard to counter


'Central Bank' will allow 90 or even 95% mortgages provided same are arranged with a full term fixed rate attaching thereby meaning the loan can be stressed at the fixed rate chosen at the beginning of the mortgage. No argument can be put forward against this by the Banks other than the veiled one that exists at all times namely profit excesses for the lenders. There will be sufficient profit to be gained from a current fixed rate of 3.85% for 30 years (current rate in USA) I believe this is the basis under which Mr. Honohan should adopt his proposals to counter the resistance from Connected parties. Just my thoughts Padraic

Just a thought.
Permit lenders to give 100% mortgages if they believe 100% is viable.
Do not give any borrower any Mortgage Arrears Resolution Process (MARP)protection until their Loan to Value( LTV) is down below say 75%.
In that way those who feel they can afford up to 100% are under no illusion on the Risk they carry, and are well aware if they cannot repay =repo.
Have a legal document to the effect if they can,t pay =repo.
Run this rule for say 5 years.
I just don,t see lenders/borrowers running mad for another 5 years..