Ireland Said to Plan Home Loan Limits to Prevent New Bubble

Guess prices will never recover to their build costs now.

:angry:

Better late than never, This really should have happened in 2008

Guess the government is happy with the level prices are at now so no need to manipulate further

need to bring in rent hike limits too because otherwise these limits can drive property ownership into hands of elite — and they will hike rents 'til you bleed

At what level would they set these limits? 80% LTV? 90%?
Hard to imagine it making a major difference but there’s always hope.

105% … for the furniture and landscaping you know . . . .

A loan to income cap would be very interesting if set at a low level ie x2.5

Why would you buy if you knew a cap was coming in and all of a sudden people are restricted on what they can borrow?

Good news and timing is about right although i hope they do something simple like 80% ltv rather than BOE style fudge that say only 15% of loans can be x5 gross income or above.

might be a good time to sell me thinks

ha! are you mad? This’ll never come to pass.

Why?

Bacon report anyone?

Consultation to go to the banks and the ibf. By the time this gets anywhere near law we will have been through the grinder another time and the irish central bank will be caught going around closing stable doors for the second time in a decade.

Still they should have the anglo building fitted out by then for the sickening ironyfest.

It doesn’t have to be law. They can impose whatever lending criteria they want on banks. While I am very encouraged by these developments, I believe that once the EAs get their jaws into this in the consultation process, any proposal will get so watered down that it will be ineffectual. Just like everything else in this wonderful country

Agreed - if anything, it’s the opposite. Limits on income multiples offer no guarantee against negative equity. They are invariant to interest rate regime (which of course changed in Ireland pre/post the mid 1990s). And more fundamentally, they do not allow a household to choose between consuming more market services than the average (and thus a low fraction of mortgage to income per month) or more amenity services (things that are factored into prices, such as green space, coastline, access to jobs, etc).

This may sound theoretical but has very practical implications: people who live in Dublin choose to spend more of their income per month to be close to the amenities it offers, with the result that income multiples are higher in Dublin than in other counties. The price of land varies far more than the price of labour - how would an income multiple take account of this? Would it be county-specific? Postcode-specific? Would ratios between counties be updated each year? Each month?

A max LTV of 80% (ideally, but being realistic more like 85% once the politicians get their hands on it) is a far neater shortcut and incredibly effective.

@ RonanL The max LTV is a good initiative however it would have to be implemented in conjunction with a disincentive to cash investors such as higher stamp duty, higher CGT etc.

My view is that if the government’s policy is to sell all the houses on which mortgages are held on to greater fools it is only sensible that they sell them on to well-capitalised greater fools so that the banks balance sheets come back in to some sort of balance. It also shows that they have confidence in their ability to control prices i.e. keep them at current levels by pulling and pushing various other levers at their disposal.

With a level playing field, credit will always be able to outbid cash, so I’m not sure I see the issue here. Particularly with very low yields on family homes (which in fairness, families seem happy with as they have inelastic demand for housing and no CGT themselves), I’m not convinced cash buyers are part of the problem or would become a problem with max LTVs.

I’m open to be won over on this, by the way, but the way things stand currently the system does not seem heavily stacked in their favour at all (the current CGT exemption merely puts investors on the same pitch as owner-occupiers).

With cash buyers still making up circa 50% of transactions in Dublin, would anything that limits the ability of credit purchasers to compete against them not hand the initiative back to the cash investor?

Without good data on this, it’s hard to know what’s happening. IBF and PPR data are not at all comparable (PPR data is not at a dwelling-by-dwelling level in all cases, while IBF data may refer to self-builds, i.e. no transactions) - what we really need here is a system similar to France, where the credit associated with any purchase is known.

I think it is reasonable to assume that the “50% cash buyer” nugget is an artifact of the 2012 (and possibly early 2013) market and also I think it’s fair that the percentage will vary segment by segment. Where apartments in Dublin with a gross yield of 10% were available for less than €150,000, cash will emerge. Where family homes are costing €400,000+ and yielding less than 5%, I’m not so sure investor cash is keen. It would help if we had data on this though obviously.

Either way, the % cash is a symptom of the health of the housing and mortgage markets currently and should not be the basis (IMO) of what we do long-run with the housing market (which should be based on principles, rather than context).