Exactly. There is nothing inherently wrong with 40 year mortgages as long as people are aware of the costs of such a deal. I was one of them 'fools' who took out a 40 year mortgage a couple of years ago. I pay extra off every month so the effective maturity is 25 years. Now I can stop making those extra payments if things get tight without having to refinance or approach my lender asking for new terms. It gives me a flexibility that I wouldn't have if I took out the 25 year mortgage.
How do we prevent the property market mistakes of the past.
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Exactly. There is nothing inherently wrong with 40 year mortgages as long as people are aware of the costs of such a deal. I was one of them 'fools' who took out a 40 year mortgage a couple of years ago. I pay extra off every month so the effective maturity is 25 years. Now I can stop making those extra payments if things get tight without having to refinance or approach my lender asking for new terms. It gives me a flexibility that I wouldn't have if I took out the 25 year mortgage.
Some planning reform i.e.
- Serious restrictions on one off housing.
- All houses must be connected to sewage/water system (remember Galway etc.)
- Stricter building regulations and min apartment sizes - improve the build quality so people get better value.
- Zoning laws changed. If a local authority determines that more housing is needed in an area, they should not zone specific fields, as they do now. Instead, if they determine that the need is for e.g. 500 houses, then all landowners with suitable land in the area should be eligible to apply for planning permission with the permission judged on its merits taking into account issues like proximity to local services, suitable land (flood plains etc.). Once the 500 houses have been built, then thats it, no more planning permissions. This eliminates the zoning issue whereby certain landowners are gifted the right to build houses and can effectively hold everyone to randsom.
- Serious restrictions on one off housing.
- All houses must be connected to sewage/water system (remember Galway etc.)
- Stricter building regulations and min apartment sizes - improve the build quality so people get better value.
- Zoning laws changed. If a local authority determines that more housing is needed in an area, they should not zone specific fields, as they do now. Instead, if they determine that the need is for e.g. 500 houses, then all landowners with suitable land in the area should be eligible to apply for planning permission with the permission judged on its merits taking into account issues like proximity to local services, suitable land (flood plains etc.). Once the 500 houses have been built, then thats it, no more planning permissions. This eliminates the zoning issue whereby certain landowners are gifted the right to build houses and can effectively hold everyone to randsom.
Jethro Tull
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as I have mainained all along my opinion of 100% mortgages and mortgages of a term more than 30 years is the following:
100% mortgages: Wreckless on behalf of the bank. We were at the very top of an asset bubble. I assume the banks could see the end of the line as some of the major ones (along with a few other major institutional investors) were selling HQs, branch networks etc. Introducing 100% mortgages was a very risky strategy as some homeowners faced the prospect of immediate negative equity. This placed the banks capital (i.e. shareholders money) at risk earning a reward (the interest rate) that, IMO, was in no way consumate with the risk
Mortgages with a term of greater than 30 years: This led me to believe that the vast majority (not all) of the people taking out these mortgages could not afford them. Put the shoe on the other foot, if well paid professionals had to resort to such borrowing that was out of sink with jistoric norms then prices were too high and susceptable to a crash. See 100% mortgages above for the risks involved to the banks and their shareholders.
On the other side look at loans to developers who bought land as massively inflated prices on the assumption that they could sell finsihed units at vastly inflated prices.
My opinion (for the reasons outlined above) is that 100% LTVs and/or mortgage terms >30 years constituted a form of subprime lending under another name. The reward the bank was receiving was in no way enough to compensate for the risks involved. This unduely put shareholders capital at risk (and when the inevitable day comes and there are big write downs in loan books that risk will not have paid off, look at Irish banks NAV's to show what the markets think of the book value of their loan books). Therefore IMO the banks were acting irresponsibly and it should have been the job of the regulator to act and prevent this.
And my analysis above is before you look at the actions of the borrower and the possible negative implications there that the regulators should have analysed
Feel free to disagree.
100% mortgages: Wreckless on behalf of the bank. We were at the very top of an asset bubble. I assume the banks could see the end of the line as some of the major ones (along with a few other major institutional investors) were selling HQs, branch networks etc. Introducing 100% mortgages was a very risky strategy as some homeowners faced the prospect of immediate negative equity. This placed the banks capital (i.e. shareholders money) at risk earning a reward (the interest rate) that, IMO, was in no way consumate with the risk
Mortgages with a term of greater than 30 years: This led me to believe that the vast majority (not all) of the people taking out these mortgages could not afford them. Put the shoe on the other foot, if well paid professionals had to resort to such borrowing that was out of sink with jistoric norms then prices were too high and susceptable to a crash. See 100% mortgages above for the risks involved to the banks and their shareholders.
On the other side look at loans to developers who bought land as massively inflated prices on the assumption that they could sell finsihed units at vastly inflated prices.
My opinion (for the reasons outlined above) is that 100% LTVs and/or mortgage terms >30 years constituted a form of subprime lending under another name. The reward the bank was receiving was in no way enough to compensate for the risks involved. This unduely put shareholders capital at risk (and when the inevitable day comes and there are big write downs in loan books that risk will not have paid off, look at Irish banks NAV's to show what the markets think of the book value of their loan books). Therefore IMO the banks were acting irresponsibly and it should have been the job of the regulator to act and prevent this.
And my analysis above is before you look at the actions of the borrower and the possible negative implications there that the regulators should have analysed
Feel free to disagree.
If we're waiting on the bottom of the market to be reached where do you think it will stop - at the cost of building perhaps? - Would that be the true value of a house.?
If you remove the only real variable in the equation - the site value - the cost of building a three bed mass production house to an Irish Builders standard (ie no interior to speak off). - then the cost/value would be less that 150,000 (and even those prices were at inflation wages levels).
Will that represent the bottom?. I remember in the early ninties it was possible to buy a second hand house that cost less than the cost of building the same so I suppose we could bottom out at prices below houses true value. We'd need serious reduction in demand for that happen though.
If you remove the only real variable in the equation - the site value - the cost of building a three bed mass production house to an Irish Builders standard (ie no interior to speak off). - then the cost/value would be less that 150,000 (and even those prices were at inflation wages levels).
Will that represent the bottom?. I remember in the early ninties it was possible to buy a second hand house that cost less than the cost of building the same so I suppose we could bottom out at prices below houses true value. We'd need serious reduction in demand for that happen though.
ubiquitous
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Re: How do we prevent the mistakes of the past.
The reintroduction of the recommendations of the Bacon Report would be a disaster. The original Bacon Report measures were a disaster when they were in place between March 1998 and December 2001. They led to a shortage of rented properties and sharp rises in rents, and fuelled continuous rises in house prices. The rent rises only abated when the measures were abolished. Tom Parlon and his VI buddies would be wetting their pants with laughter if the Govt were stupid enough to go down that road again. It would be truly a case of the government bailing out the housing market at the expense of tenants and first time buyers.
The reintroduction of the recommendations of the Bacon Report would be a disaster. The original Bacon Report measures were a disaster when they were in place between March 1998 and December 2001. They led to a shortage of rented properties and sharp rises in rents, and fuelled continuous rises in house prices. The rent rises only abated when the measures were abolished. Tom Parlon and his VI buddies would be wetting their pants with laughter if the Govt were stupid enough to go down that road again. It would be truly a case of the government bailing out the housing market at the expense of tenants and first time buyers.
I would depends how you describe "ordinary folk", and if as you suggest they have done well are they still ordinary folk? Are they on the industrial wage, i would doubt it somehow. I think Jethro Tull's point should have said developer rather than builders. If they have "done very well", from 1995 till 2008, and lets face it, it was easy for builders to do so. The point is how are they doing now, there have been enough official statistics to point to job losses in construction so was 15 years of boom enough to support 25 years of unemployment, we'll have to wait and see.
S
Senna
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The question is, would the banks have given you the same amount over 25 years as they did for 40 years?
The simple fact is, if there were no mortgages over 25-30yr terms, a vast majority of FTB's wouldn't have been able to afford to buy in 2005-2007. If there wasn't this demand, what would have happened? maybe prices would have dropped to a level were FTB's could have afforded the same house, only with a mortgage of 25yrs.
This might not be the case with you as i dont know you, but wouldn't you be happier with a smaller mortage over less years? instead of being forced to take it out over 40yrs cause that was affordable, on a over-priced house?
True value of a house is moving target decided by demand and supply. There is so much over supply currently that it is highly likely that alot of newly built poor quality housing will have to be sold off at a loss and well below cost.
Indeed if you have travelled through the midlands recently its hard to imagine some empty house estates ever being full no matter how low prices were to go
I think one of the biggest legacys of the housing boom is that the irish countryside is littered with ugly one off houses, I think the first thing that should happen is that planning be now strictly enforced especially with regard to one off houses, developers love moving into green field sites rather than redeveloping existing sites, this should also be severely restricted, force developers to demolish ugly developments which are now underused, there are many industrial areas in the dublin suburban areas which are largely vacant, force redevelopment into these rather than continuously sprawling urban areas outwards
Jethro Tull
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The sooner people cop on to this one the better
Re: How do we prevent the mistakes of the past.
I totally disagree and contend that the rise in the cost of housing was fuelled by the tax relief given to investors following the abolition of the Bacon Report recommendations. It became easier for investors to buy 3 and 4 houses than for first-time buyers to get on the market.
And it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses
I totally disagree and contend that the rise in the cost of housing was fuelled by the tax relief given to investors following the abolition of the Bacon Report recommendations. It became easier for investors to buy 3 and 4 houses than for first-time buyers to get on the market.
And it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses
ubiquitous
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Re: How do we prevent the mistakes of the past.
So why then did rents balloon in 1998-2001, especially in 2001 which wasn't a particularly great year for the economy between the foot & mouth crisis and 911?
So you now want to bail out these landlords and restrict the availability of rental properties once again?
So why then did rents balloon in 1998-2001, especially in 2001 which wasn't a particularly great year for the economy between the foot & mouth crisis and 911?
So you now want to bail out these landlords and restrict the availability of rental properties once again?
Firstly the original poster asked "How do we prevent the property market mistakes of the past". Economies go in cycles and when the next peak comes around, I would prefer to see government policies aimed at reducing investment rather than fuelling it. I would prefer a stabilised economy which shows peaks and troughs which are just above and below the equilibrium rather than what has happened over the past 10-15 years where the attitude of many has been "Lets make as much money out of this as we can and screw everybody else"
Secondly where did I say I wanted to bail out landlords?
The way to stabilise rents in a time of rising house prices is to offer tax reliefs to landlords who are prepared to offer tenants longer-term tenancies rather than 12 month ones followed by 20-30% rent hikes.
Examples include:
25% of the mortgage interest allowed where a 3-year lease is granted
50% of the mortgage interest allowed where a 5-year lease is granted
75% of the mortgage interest allowed where a 8-year lease is granted
Prior to Budget 2007 (I think), EVERY landlord got the same tax relief irrespective of what type of lease they grant to their tenants.
If you own a property, your mortgage repayments don't increase unless interest rates are rising. Yet in a time where interest rates were falling, rents were increasing, even by landlords who were already in the market. These guys owned properties which they bought cheaper than the properties were worth yet they were creaming off the top on the rental side as well as making huge gains on the equity side.
No wonder everybody wants to own their house in this country when a landlord can double your rent if he wants and there is nothing you can do about it.
Secondly where did I say I wanted to bail out landlords?
The way to stabilise rents in a time of rising house prices is to offer tax reliefs to landlords who are prepared to offer tenants longer-term tenancies rather than 12 month ones followed by 20-30% rent hikes.
Examples include:
25% of the mortgage interest allowed where a 3-year lease is granted
50% of the mortgage interest allowed where a 5-year lease is granted
75% of the mortgage interest allowed where a 8-year lease is granted
Prior to Budget 2007 (I think), EVERY landlord got the same tax relief irrespective of what type of lease they grant to their tenants.
If you own a property, your mortgage repayments don't increase unless interest rates are rising. Yet in a time where interest rates were falling, rents were increasing, even by landlords who were already in the market. These guys owned properties which they bought cheaper than the properties were worth yet they were creaming off the top on the rental side as well as making huge gains on the equity side.
No wonder everybody wants to own their house in this country when a landlord can double your rent if he wants and there is nothing you can do about it.
ubiquitous
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But how many students & young office workers are interested in apartments rented under 3/5/8 year leases?
This was the constituency that suffered most during the rent hikes of the 1998-2001 Bacon period, when as you say...
... a scandal that was largely resolved by McCreevy's scrapping of Bacon's rules in Dec 2001. Since then, increases in supply has introduced a measure of competition into the market and rents have not increased at the same rate as they did in 1998-2001.
You have said above that you would like to see these rules reintroduced. You also said that "it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses".
This is why I asked to you clarify whether you are in favour of bailing out landlords by pushing up rents and house prices, as this would be the first consequence of your suggestion.
This was the constituency that suffered most during the rent hikes of the 1998-2001 Bacon period, when as you say...
... a scandal that was largely resolved by McCreevy's scrapping of Bacon's rules in Dec 2001. Since then, increases in supply has introduced a measure of competition into the market and rents have not increased at the same rate as they did in 1998-2001.
You have said above that you would like to see these rules reintroduced. You also said that "it is this measure which has indirectly fueled the drop in house prices as there is now a significant glut of rental properties in the market and investors are looking to sell up and get out, which in turn reduces the value of homeowners houses".
This is why I asked to you clarify whether you are in favour of bailing out landlords by pushing up rents and house prices, as this would be the first consequence of your suggestion.
I don't want to see the Bacon Report introduced NOW. It's too late for that.
It should have been re-introduced back in say 2003 when it was obvious to the dogs in the street that the demand for new houses was far outstripping supply and that a significant portion of that demand was from investors.
And it doesn't make sense to say that investors were creaming it on the rental side BEFORE the abolition of Bacon.
After Bacon, an investor could buy a property with an interest-only mortgage. By the time the property was ready to be rented, the rent covered the interest-only mortgage and NO INCOME TAX was paid by these investors.
*tongue-in-cheek mode* The way to solve the housing crisis is for the government to buy all unsold houses from builders at 50% of the cost of building them and then knock them! This will almost single-handedly equalise demand & supply in the housing market. Then regulate the housing market properly going forward. *end mode*!
It should have been re-introduced back in say 2003 when it was obvious to the dogs in the street that the demand for new houses was far outstripping supply and that a significant portion of that demand was from investors.
And it doesn't make sense to say that investors were creaming it on the rental side BEFORE the abolition of Bacon.
After Bacon, an investor could buy a property with an interest-only mortgage. By the time the property was ready to be rented, the rent covered the interest-only mortgage and NO INCOME TAX was paid by these investors.
*tongue-in-cheek mode* The way to solve the housing crisis is for the government to buy all unsold houses from builders at 50% of the cost of building them and then knock them! This will almost single-handedly equalise demand & supply in the housing market. Then regulate the housing market properly going forward. *end mode*!
ubiquitous
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ie Rents weren't high enough and were being depressed by the entry to the market of new landlords?
The existence of the 1998-2001 rent hikes isn't a matter of opinion. It is fact. If you don't believe me, read any of the many critiques of the Bacon measures from the likes of Colm McCarthy or Brendan Keenan at the time. You should find these easily in the Irish Times or Indo online archives, as well as this:
[broken link removed]
I'll concede that the abolition of the Bacon Report was probably needed in 2000/2001 in order to boost the number of rental properties in the market. Nor can I deny that investors were making money from high rents during Bacon. However, they also made money following the abolition of Bacon, all the while pushing the cost of new houses beyond the reach of first-time buyers.
In the article you quoted, Mr. Murphy of Threshold didn't call for the interest relief to be re-introduced for investors, but called for reform of the stamp duty laws as well as abolition of the 2% speculator tax.
Some watered-down version of Bacon was necessary at some stage in the last 5 years to slow the rising cost of new houses.
In the article you quoted, Mr. Murphy of Threshold didn't call for the interest relief to be re-introduced for investors, but called for reform of the stamp duty laws as well as abolition of the 2% speculator tax.
Some watered-down version of Bacon was necessary at some stage in the last 5 years to slow the rising cost of new houses.