How do the CB mortgage limits work from the lenders' perspectives?

Thanks Sarenco

"Perhaps the easiest thing to do is explain it, currently you can’t get an exemption from Ulsterbank or AIB/EBS/Haven or BOI, but you can from PTsb and KBC."

He speaks about a mortgage drought. That is a bit alarmist. The reality is that no lender is facing any restriction in lending up to the 80% limit for second-time buyers and the 90% up to €220k limit for first time buyers.

The "drought" only affects those who want to borrow in excess of the limits.

"Somehow we have managed to create the 1970’s all over again, where people queued and timed their mortgage application because the Building Societies didn’t have the money, now they do have the money they are just not allowed to lend it!"

It's not comparable at all. The Building Societies simply didn't have money to match the demand in the 70s. No one who is borrowing sensibly need have any worry at all. In fact, they may find it easier to get a loan, because the more sensible lending they do, the more reckless lending they are entitled to do.

Brendan
 
Absolutely agree regarding the commentary but I thought the piece was interesting in terms of its description as how the exemptions are applied in practice. In particular, I didn't know the Central Bank effectively imposed quarterly and annual quotas so presumably a lender can't simply "use up" all available exemptions at the start of a calendar year.

Karl's views on the mortgage lending restrictions are pretty well known and I'm sure he would be the first to acknowledge that he is hardly a disinterested party. Also, the piece was written back in August so it may not accurately reflect the current position.
 
An employee of AIB told me that the restrictions were preventing them from lending up to 90% up to €220k to First Time Buyers which I thought was odd. It appears that he is mistaken. They are just prevented from making any further exemptions, because they have used them all up.

The quarterly and annual quotas will need to be revised. If a lender gives Approval in Principle for one year and the borrower doesn't draw it down, then the lender will be prevented from lending to someone else. If they offer an excess of AiPs and more than expected are drawn down, they could exceed the quota. The lender should be allowed to carry forward the shortfall or excess on the quota to the following calendar year, within some limits.

Brendan
 
The Sunday Business Post had an article about this back in September, how the Banks had already reached their 2015 exemptions limit
http://www.businesspost.ie/#!story/...kdown/id/c95cb384-4890-440f-a35c-860cf3fdd035
The mortgage market is poised to grind to a halt over the coming months as banks run up against Central Bank limits on lending to homebuyers, it has emerged.

Mortgage experts are now warning that a number of lenders have already maxed out the number of exemptions they can grant for the year under new rules."

Banks are allowed to breach the rules in a limited number of cases, however, there are fears some lenders have already run out of room to allow exemptions to the rules, banking andmortgage market sources told The Sunday Business Post last week.
Click to expand...
 
But I don't understand why they are saying that the mortgage market will grind to a halt. Only 15% of the market will grind to a halt.

Brendan
 
When it comes to Property in this country, everything is hyped up to the last
 
Maybe the 3.5 x income restriction is troubling them more than the 80/90% ltv restriction. Somehow I think the banks would be reluctant to go above the ltv values, but would be happier to break the 3.5% rule based on the applicants ability to pay.
 
Hi John

That is interesting. The lenders made submissions against the LTV restrictions. But as far as I know, they didn't complain about the proposed LTI restrictions.

Brendan
 
OK, I gather that few people are able to meet the Central Bank rules, so they need to make a lot of exemptions.

But that doesn't make sense either. If few people meet the CB rules, then the number of exemptions will be 15% of "few".

Brendan
 
I wonder what are the figures for mortgage draw-downs since the new rules were applied?
As a prospective seller/buyer, I see a lot of houses around me going sale-agreed very quickly (at crazy prices) over the past few months, but very few are actually sold. There are two houses very close to me that are sale-agreed for 6 + months, but dont seem to have closed the sale. It makes me wonder if we haven't yet seen the full effect of the new mortgage rules on the Dublin property market.
 
It seems that the Central Bank are being blamed for the whole lot. Meanwhile, developers sit on a huge amount of green fields that they won't develop until the profit margins are right.

You only have to look at the amount of threads on this site by people who were over mortgaged to the hilt to see why these rules were introduced in the first place.

It was always going to be tough at the beginning but over time, I think the rules will prove to be correct...as long as the politicians don't manage to change the rules so they can win votes.


Steven
www.bluewaterfp.ie
 
JohnJay said:
I wonder what are the figures for mortgage draw-downs since the new rules were applied?
As a prospective seller/buyer, I see a lot of houses around me going sale-agreed very quickly (at crazy prices) over the past few months, but very few are actually sold. There are two houses very close to me that are sale-agreed for 6 + months, but dont seem to have closed the sale. It makes me wonder if we haven't yet seen the full effect of the new mortgage rules on the Dublin property market.
Click to expand...
Here's some info on Mortgage Approval stats...they don't necessarily translate into draw downs though
[broken link removed]

And a graph on same courtesy of the Property Pin
[broken link removed]
 
SBarrett said:
Meanwhile, developers sit on a huge amount of green fields that they won't develop until the profit margins are right.
Click to expand...

I don't think that is the full picture. Some can't get finance. Unless they are in parts of Dublin the selling price doesn't cover the cost of building and selling, so they would be developing the sites at a loss.

Brendan
 
Actually, I think I may have read too much into Karl's blog entry.

In a paper presented to the Society of Chartered Surveyors Ireland earlier this month, the outgoing Deputy Governor (Central Banking), Stefan Gerlach noted that banks’ compliance with the measures will only be assessed after lending data for the period to end-December 2015 has been submitted and before that date the Central Bank will have no hard evidence on how the measures have impacted on bank lending. As such, to the extent that banks are applying quarterly exemption quotas, this would appear to be an internal control measure rather than as a result of something required by the Central Bank.

The paper and accompanying slide deck are worth a read. In particular, the Deputy Governor notes that lending at LTVs greater than 90 per cent was only 15 per cent of all new lending in 2013 and that his suspicion – which remains to be confirmed or disproven – is that the macro prudential policy tools introduced by the Central Bank have not as yet had much direct effect on bank lending.

http://www.bis.org/review/r151023j.pdf
 
http://www.rte.ie/news/business/2015/1106/740159-kbc-mortgages/

RTE are reporting that KBC has asked some borrowers if they can postpone drawing down their mortgages until the new year as they are in danger of breaching the 15% exemption limit provided for in the new mortgage lending regulations.

It seems to me that the Central Bank is going to have to issue more granular guidance as to how the new regulations should be applied in practice if banks are going to aggressively push the limits of the exemptions. It is surely undesirable to have periodic "bursts" of credit released into the housing market in this fashion.

I wonder if any of our bank "insiders" would care to comment on how these new regulations are being applied in practice in their bank? Is there a de facto monthly or quarterly quota on approvals (or drawdowns) that can fall within the 15% exemption? Alternatively, in practice are banks managing this issue through some other process?
 
Brendan Burgess said:
He [Karl Deeter] speaks about a mortgage drought. That is a bit alarmist. The reality is that no lender is facing any restriction in lending up to the 80% limit for second-time buyers and the 90% up to €220k limit for first time buyers.

The "drought" only affects those who want to borrow in excess of the limits.

"Somehow we have managed to create the 1970’s all over again, where people queued and timed their mortgage application because the Building Societies didn’t have the money, now they do have the money they are just not allowed to lend it!"
Click to expand...

Up to the end of September mortgage lending rose by 15% over the same period last year according to this report in the Irish Independent.

So the drought had not hit by the end of September. Conal Mac Coille says that "lending growth looks set to slow." Maybe so, but still not a drought like the 1980s. Anyone who wants a mortgage who meets the LTV and LTI criteria will get multiple offers. I suspect that from the new year, the 15% exemptions will be available again.

Brendan
 
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