I basically agreed with your post until this last bit. You are not serious? To be honest if this crisis has done anything for me, it's made me realise being risk adverse is a good thing. Any of the people related to me that overborrowed and who will be getting right downs etc are in a whole heap of of a financial mess and total and utter stress for years.
Dedfinitely more of a "moot point" for the forseeable future Bugler. While the banking sector may over time revert to a less risk averse approach to lending, I don't see this happening in either the short or medium term! possibly your grandchildren may get this opportunity!
My view is that we are slowly coming out of this mind-set, with a progressive re-posession and sale pattern of mortgages that are totally unsustainable. My point was not that there may not be a future slump in hous prices, but that bank lending practises will be repayment led rather than asset led, as was the case up until the early noughties!A precedent is being set that dictates the family home is sacred, no matter how much of a gamble you made initially.
Now thats wishful thinking...this is Ireland!!!
A precedent is being set that dictates the family home is sacred, no matter how much of a gamble you made initially. And right now we are seeing a boom (some say bubble) happening in large parts of Dublin for decent sized 3 and 4 bedroom family homes...who's to say that some of the mortgages handed out now won't be in bother in 3 years time when we have a different interest rate picture
If I hit trouble, the banks must come to an arrangement that works for me.
If people decide that there is no risk anymore to getting a mortgage that they can't afford, then work away. I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong. Ask thousands of families currently dealing with abnks about arrears if they realise how lucky they are.
You're effectively saying that they're the riskiest loans a bank can give? If so how can Irish banks hold mortgage rates below those of unsecured loans.What precedent? Historically, house repossessions in Ireland have been almost non-existant even during previous economic meltdowns like the 1980's when interest rates went through the roof. There is nothing new in this. Banks in Ireland have never wanted to reposess family homes. Everyone knew that.
It's not about playing chicken, it's rational people thinking what happens if the worst case occurs. They may not go all out but it could push them to borrow more.I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong.
Dedfinitely more of a "moot point" for the forseeable future Bugler. While the banking sector may over time revert to a less risk averse approach to lending, I don't see this happening in either the short or medium term! possibly your grandchildren may get this opportunity!
If people decide that there is no risk anymore to getting a mortgage that they can't afford, then work away. I for one have no interest in playing a game of chicken with a bank and putting my family under extreme stress if things go wrong.
You're effectively saying that they're the riskiest loans a bank can give? If so how can Irish banks hold mortgage rates below those of unsecured loans.
Was there a large amount of NE around in the 80s? In the UK yes, Ireland I'm not so sure. Without NE you just sell and repay the loan.
It's not about playing chicken, it's rational people thinking what happens if the worst case occurs. They may not go all out but it could push them to borrow more.
Most of today's borrowers are borrowing well under what the bank would like to give them. The banks have a limited pool of money to lend so they give it to the safest possible borrowers. The safest borrowers will have savings, good earnings, and are smart enough that they won't need a bank to tell them how much they can afford to borrow.
But thanks to what we're seeing, any buyer now should only pick AIB as a lender, and consider getting a larger loan because there's less downside if they can't afford the loan. If that's not moral hazard I don't know what is.
I'm not sure if your misreading of my point is deliberate or not, but allow me to clarify for you: I am not suggesting anyone take out a mortgage "they can't afford". I am merely stating that there is little to incentive to a borrower restricting their borrowings themselves. It isn't rational, there is little to no risk to borrowing to the maximum you can service. Any future shocks will be borne mostly by the bank, by state decree. And if your earnings go down 15%, well there is a clear directive to the banks that they need to play ball with you to keep you in your home. No risk, so no deterrent.
going for gold;
You are correct ,negative equity can easily lead into an arrears mind-set .
I just cannot see that in the scheme of things it will be a major issue.
Anyone who uses negative equity as a ploy whilst having adequate funds to repay and keep a reasonable life style will be quickly found out.
I have sympathy for the person who can never see his/her way out of a lifetime of debt and who does not have enough income to maintain a reasonable life style, in that case unless he defaults Mr Bank will not come to a more socially acceptable arrangement.
It is a tough call.
I know Banks are not too bright but they are not that stupid {I hope}as to permit those who can afford play the poor me card.
It's not moot at all, Brendan. I am speaking here from experience. I have been mortgage approved for 275k in the past, but my salary would actually make it possible to borrow 310k or so (maybe a bit more since I was approved originally).
The old me was prudent, I only wanted to borrow 275k at an absolute maximum. I am not looking to live in a grand house or the most salubrious area (just as well here in Dublin). I was risk averse.
The new me has realised that there's no need (or indeed advantage) to being risk averse, as it is actually others who carry the risk. In fact, being risk averse places me at a distinct disadvantage if buying a house, because I'll invariably be bidding against someone who isn't so risk averse and so who has more purchasing power compared to me.
So I might as well borrow the 310k. Everyone seems to be agreed that to be trying to put a family out of their home because they can't make their full mortgage repayment is abhorrent, to the point where it effectively is not allowed if some sort of reasonable offering by the borrower can be made (and whether repossession is possible or not, the banks don't seem interested in doing it).
Rationally, this opportunity to borrow more at reduced risk to myself is a no brainer. These are the market dynamics, and you get no thanks for acting prudently.
The interesting question on the banking side is why, given that Irish banks effectively operate a quasi-unsecured mortgage lending model (the process of repossession is both lengthy and costly, to the point where it seems better in many cases to actually write off debt) are Irish mortgage rates and Irish mortgage lending not as unusual as the wider mortgage environment?
Mortgage rates should be very high given the extreme difficulty in enforcing security. LTVs should be restricted. But there's AIB without a care in the world lending me over 4 times salary at 92% LTV on a 35 year term, as though they can actually repossess the property if I can only service 75% of the mortgage (they can't and/or won't) I'm not sure if changes in this regard will filter through as the reality dawns on lenders, or if I should expect some sort of plan to deal more stringently with arrears once the CB/Govt/Banks feel enough largesse has been shown, changes that will make mortgage lending secured again.
None of this has been a secret. People have always known that banks are reluctant to repossess so the moral hazard as people call it has always been there
It hardly screams moral hazard to me. Bailing out the banks with taxpayers money screams moral hazard to me
How are they the riskiest loans that banks can give?
That's simply not true, when I first took out a mortgage (c 2000) people borrowing were under the impression that a bank could and would very quickly move against you. In fact it used to be recommended to head to the building societies if they'd have you as they had a more tolerant approach if things went pear shaped.None of this has been a secret. People have always known that banks are reluctant to repossess so the moral hazard as people call it has always been there.
Sindo have a nice article on debt forgiveness at work, Irish style
http://www.independent.ie/opinion/a...ng-yourself-a-big-fat-writedown-30117091.html
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