# Is this Stoking the Fire?

From the KBC mortgage calculator.

A single borrower

Age: 35
Income: 50
Amount that can be borrowed: €208k

I said to myself, that seems reasonable enough, manageable!

Then I put in joint income (reasonable incomes??)

first borrower
Age: 35
Income: 50k

Second borrower
Age: 33
Income: 25k
Amount that can be borrowed: €337k (wtf)

Repayments over 30 years = €1,701.53 @ 4.56%

Riddle me this.
John and Mary get a mortgage for 337k, have a deposit of say 40k so they can now have buying power of 377k, that would get modest/reasonable, if overpriced house in most parts of Dublin.

2 years later Mary pops a sprog, decides its best to stay at home with little johnny, as sure by the time you factor in child care costs, sure she is only bringing home a few quid extra a week.

Now we have a situation where John has to service the mortgage of €1,701.53 on his own while providing for himself and his family. What is the take home per month on 50k (maybe €2,900 a month or so).

Over the next 3 years interest rates go up by 1.5%, (this adds maybe €20 per 100k, is this accurate?)this will add maybe another €75 per month, so we are up at near €1,800 per month.

I realise that I am using a lot of maybes in my calculation, I welcome the input of the people who can provide accurate figures (i wont get offended )

This excludes, water tax property tax, cost of bringing up a child, other kids coming along. holidays, etc…

Is it just me or is it wrong to give so much to a joint applciation compared to a single application!

I realise that banks are not giving out cash as easily as before, no wonder people have gotten themselves into financial difficulties in the past and will continue to do so , if my assumptions above are correct.

(Note: It could be the case that John earns 25k and Mary earns 50k and John stays at home)

You’ve confused pre approval amounts with what will actually be lent.

75k joint income won’t get you €337k, prob more like €200k.

Im just going from the calculator, why would they say thay the joint people “could borrow” 337k.

I suppose a lot depends on how much saved and the type of job you have, public/private sector!

Well my point is the calculator amount won’t stoke any fire as it’s not what you’ll end up being lent.

The banks don’t work off gross salary anymore. They work off net/disposable income now - they take loans and other expenses off and then a set amount (think it was 2000pm for a couple) when we did it with aib. Deduct a further €250pm per child (we’d none). They then stress test to 6%. They’ll lend you the equivalent amount per month left each month. (i.e a lot less)

The issue of Mortgage Approval in Principle v A solid Mortgage loan offer was discussed here a few weeks ago

viewtopic.php?f=10&t=61374

I’m interested in the stress-test to 6%.
Given that the ECB rate is 0.25% and mortgage rates are c4% higher, if the ECB raise rates by 2%, does the mortgage rate increase beyond 6% ?

Don’t see why it wouldn’t - but given we are looking at another rate cut next month, it might be a good few years before rates move higher again especially to that degree. Admittedly a mortgage is a very long period but remember the 6% is an average over the life of this contract so with 5+ years of 1.5% or so below the 6% (again assuming banks hold their margin - but obviously they should factor this in themselves), you’d need a number of years well above it to level out.

I’m no actuary and not saying it’s right, it’s obviously just a level they feel comfortable at given the level of deductions for disposable income etc.

Also see the KBC re-mortgage thread - there are lower rates available at lower LTV amounts - so pile money off the mortgage now while ECB rates are low as it’s pretty certain they won’t be forever.

A 1.5% interest rate hike would add over €300 to your monthly repayments in this scenario.

I’m not sure why the calculators quote high figures. It is very misleading. And all the banks do it. Maybe it is to lure people into a buying frame of mind!

Good insight Kenny! Thanks.

Thanks Quango for the mortgage repayments clarification!

Jackal - thanks for the steer to the other post!

Very misleading how the banks operate, cant say i am suprised. It must be done to get you in the door.

This leads me to another question so, where are people getting the money to buy houses? It is not a stable functioning market.

I am in my late 30’s, single, I have saved a significant amount over the years, I have a good job which pays well, however I cant see myself buying anything in the medium term as I think the prices are crazy at the minute (in Dublin). I just don’t see value compared to the effort it took me to save my wedge.

That sounds to me like you can afford to buy, but you don’t want to buy.
That’s a personal decision

Another person is looking at the exact same houses and deciding that it is worth paying (close to) the asking price for that house.

There have been thousands of discussions on how to work out the “value” of a property, and I’ve never seen anything even close to a rough consensus on how to do it for a PPR (investment property is a different matter). At the end of the day, you’ve got to analyse the facts out there the best you can, analyse your own personal situation, make some educated guesses about the future and trust your instinct. For me, the end result was the decision to purchase, and that’s what I did last year. Only time will tell whether that was a sensible decision or not.

A number of people sold at or near the peak, and had a fair bit of equity. Some people inherited money. Some had been saving for a house for years.

I think when this money is gone, it’s gone.

On the other hand, some of the bulls on here subscribe to the Theory of Infinite Cash, which says that people keep inheriting this money or winning the lotto or saving the money, and the cash keeps flowing. I don’t buy it.

Mantissa, I think you coined the phrase “the theory of infinite cash”. I don’t think I’ve read anyone here who says there’s infinite cash out there (please correct me if I’m wrong). Perhaps it’s just tongue in cheek.

I would say that at the depressed level of annual market transactions such as we’ve had for the last few years there is a chance (not a certainty) that inheritance, business windfalls etc could sustain 50% of that super low transaction level for a loooooong time. What I’m suggesting to people who are banking on “the cash must run out and lead to lower house prices” is there is a chance it won’t run out only while the are so few house sales going on. The cash is not infinite at all. Once transactions levels go back towards average there will not be enough cash around to account for 50% of transactions. It’s just that people are dying, selling businesses and doing deals in much more historically average numbers than houses are being bought in this peculiar time in the Irish house market.

Guilty! Can’t think of how else to describe it though.

That is certainly a valid argument.

My questions about the Theory are always pretty much the same though – did this cash also exist in the Celtic Tiger days? Was there more of it or less of it in the Tiger days (keeping in mind that cash from inheritances is usually actually cash from selling a house)?

Without assuming a bullish perspective, lets say not a negative one.

The downturn was a long time coming with lots of stages. Things topping out in securitisation in late 2006. The decline of CDOs in 2007. Lehmans. Our own banks equity. Everything was dismissed at the time by the believers who were unable to imagine the sun turning to clouds. Then, when it started pissing rain, we were all laughing at the believers inability to properly understand what had happened.

There is comfort in an established position. But everything has changed since Draghi and the LTRO. And it took me long time to realise that the underlying effect that his actions in Europe would have here. Anyways, I said all this shit a while ago (Barney called it “so fucked we’re fine” I think).

So, ridicule the prospects with things like “infinite cash” but they are not going to change the underlying change in sentiment. Similarly, the assumption that lending will be as cautious as it is today in 3 years is as valid as having assumed that the .75% trackers were here forever.

Well, you have studiously ignored the links to the DELG leverage stats and history I pointed you to before then.

environ.ie/en/Publications/S … tatistics/

Citation needed

The moneys not gone.

I just bought a big expensive house so yes I’m out of the market now and I won’t have any cash for a long time but I did just hand a big chunk of change to the people I bought the house from (a number of people who had inherited it from their parents, so I assume there was no bank loan to repay)

Effectively I’ve just done a wealth transfer to a number of other individuals, so while the cash is not infinite it does circulate around.

…and ends up in the bank, paying back debt. Either their debt, or the debt of the people whose houses they buy.

85% of people in this country are up to date with their mortgages. This idea that everyone is selling some kind of forced sale is ridiculous.

Or they use it to issue more debt!

Which s the basis of the money supply and the entire world economy.

There may have been more cash in the celtic tiger days flowing in from sales of assets, inheritances, business deals and share disposals than now but at the same time cash transactions accounted for a far lower % of all house purchases mainly because of the unfettered mortgage lending back then. But when the mortgage lending is cut off obviously those non-cash transactions are decimated and the cash buyer (who was always there) suddenly accounts for a much higher percentage of all transactions. We don’t have any data to say either way if current house prices can maintained into the future with new cash (i.e. cash not banked from a house sale in the Celtic tiger). My motive is to challenge the prevailing (and I think shaky) assumption among some pinsters watching this housing market that “the cash must run out sometime, and then I’ll pounce”. At the current low level of transactions, I wouldn’t rely on the theory that cash will “run out”. Call this my challenge to the “theory of finite cash” if you like