Are banks still lending too much to FTBs?

Is the rule of 4 times your combined salary for a mortgage completely out the window now or have I got it wrong?

Myself and the boyf are first time buyers (or will be if we find somewhere we can realistically afford) and approved in principle and were fairly shocked when we worked out what our mortgage repayments would be with that amount if interest rates rose to 5% on a 30 year mortgage.

I’m currently saving as much as I can while living at home and have worked out that those repayments would be more than what we’re saving together now. Add bills, pay cuts and maybe kids into the mix and its an impossible amount.

We didn’t even ask to be approved for the maximum amount we could have. We thought we were being realistic until we did the calculations in more detail and compared with what we’re saving now.

We thought banks were being stricter with the amount they were lending in these times but it seems not.

No. If they were stricter with their lending, they would further ruin their solvency by driving down house prices. The game for the moment is try to prop up the value of the assets on their balance sheets to what they deem may be sustainable in a market dictated by NAMA. My advice would be rent for a while, live day to day and focus on improving your earning power until this thing plays out a bit further. But that advice could be wrong if the current system and current status quo somehow manages to prevail. Could go either way at this stage.

I’ll have to go on averages here due to the lack of information from the OP.

If you and boyf are on €36k each then you’re taking home €2500 per month each. 4 times your combined salaries would be €288k which over 30 years is a repayment per month of €1550 at 5% interest rate. €1550 per month is 31% of your combined after tax income. This doesn’t seem ludicrous to me.

If you break your possible mortgage payment of €1550 per month into capital + interest, then the interest payment at the start is €1200 per month. This doesn’t appear to be miles off market rents for 2 beds in Dublin (no idea where you’re planning on buying!).

If you’re looking at a home with a price of less than that, say 220k i.e. in line with the national average recently, then you’re looking at repayments on a 92% mortgage of €1100 per month of which interest is €850.

What percentage of your income had you in mind to spend on accommodation and eventual ownership of the asset?

Warning…further price falls will f*ck up all above calculations and make you regret leaving home. :smiley: …possibly so will moving in with boyf :laughing:

:smiley: funny

Well done Gilroy, you fairly hit the nail on the head with your guesswork!

4 times our salary is what I’d consider fair-and yeah, not ludicrous at all. Thats not what the bank offered us though! We were approved for 5 times and we were asked would we like more! Alot more confident about moving in my boyf than I am with buying now-and thats how it should be :smiley:

Thanks roc, that makes sense alright. Negative equity doesnt suit the banks at all! Banks must be treading a very fine line between lending responsibly and not driving down house prices.

How much are ye able to save right now…every month ???

Bhrugha, I reckon Gilroy is your fella! :wink:

You’ve forgotten mortgage interest relief

Forget about salary multiples etc etc the truth of the matter is banks are probably still lending too much as salaries will continue to decline over the next few years as we strive to once again become competitive or die. Thus 3 or 4 times salary today may be 5 times in the near future if you throw in a 15 or 20% paycut over the next 18-24 months or worse redundancy

31% of salary being spent on Mortgage payments is still too much if you have children.
If planning a family you need to factor in around €800 a month extra for childcare or the loss of one entire income if someone becomes a full-time parent.
Currently we live on one modest income of 40k, we pay €700 a month REnt and are still overdrawn most months. That’s 24% of net income.
And we live a frugal lifestyle believe me. Our one luxury is health insurance at €191 per month. I also save €140 a month of the €300 child benefit to go towards a college fund for the 2 kids.
We have to dip into savings for things like car insurance, the odd bargain hotel weekend, etc.

When we eventually do buy I’m trying to get our mortgage to be €100k or less if we an get away with it. Because in reality we can’t afford to make repayments on a higher amount. Thankfully we did sell our first house in 2005, otherwise we’d be looking at going on the list for Council housing.
So there MUST be thousands of families out there in absolutely dire straits. I don’t know how any family on one income or a modest income can survive after paying €1500+ each month.

A SINGLE PErson on 36K does not take in 2500 net a month??

Almost, about 2430 pm, according to www.hookhead.com

Did a few calculations there, its 31.5% monthly net income