"The banks are not lending"

The Irish Property Bubble (2006) The Republic of Property
1

This is something I hear bandied about on here (even from myself).

Is there any truth in it? From what I can see there was a dead cat bounce on the back of stamp at the start of the year.

However sales are closing. The CB figures indicate lending IS going on. Yes, much reduced, but still there.

Despite my (selfish) desire for it all to dry up that is not policitally sustainable. All efforts made in the rescue seem to point firmly towards the desire to have a functioning banking sector which will in turn put a floor on prices (not in itself a bad thing - no point having a cheap house if the country has gone to hell in a handcart).

Thoughts?

2

Anecdote alert

I know several people sounding out the banks, thinking of buying a house or a decent second hand car

Any of them with solid jobs have absolutely no problem getting approval, in terms of home loans you’re talking in the region of 4-5x gross salary

Banks asking for more documentation etc but no hassle

We hired a graduate in September and he had no problem getting a 12k car loan just before Xmas (commutes from Wicklow)

end anecdote

I’m always suspicious of people who spout the banks aren’t lending. A lot of them are possibly bad risks and/or are trying to get idiotic sums

3

First hand anecdote:

I was rejected for a very modest mortgage (1.5 times earnings; <40% LTV) because the bank couldn’t fit me into their tight one size fits all criteria. Despite having ten year history with the same employer the bank did not like the fact that the employer was based outside Ireland. After that rejection I applied for a €50k mortgage on the basis of a portion of my income with a more verifiable provenance in Ireland and even that got rejected. But two weeks later the same bank approved me a for a €30k car loan (I declined).

Second hand anecdote:

An EA with nothing to gain from spoofing me told me that the banks are encouraging EA’s to send them first time buyers but those are the only clients they are really interested in. I took that to mean that the banks were only interested in advancing a mortgage that would actually take a house off the market, not one that would take one house off by replacing it with another.

EDITED: Should of course have been <40% LTV

4

Interesting! The big elephant in the room is the 300,000+ empty new houses and appartments. Banks are taking people to court and winning court orders for repossession, but they are not executing the orders. What good is another house to them? All houses are, in a certain sense, worthless now, or maybe valueless is a slightly better way to put it. As word gets around that one can default but end up staying in one’s house, even more people will default. And we own the banks that will some day just dry up. What a mess?

5

There is a swathe of homeowners out there who are being financially irrational by paying their mortgage, and it is much greater than the reported mortgage arrears. If you are hopelessly overleveraged, every month you pay your mortgage is a total waste of cash flow. Putting you into personal bankruptcy makes no sense and neither does repossession. Same goes for your car loan. So there is really no sanction but the borrower hasn’t realised it yet or simply cannot handle the stress. Or is clinging to a tracker not realising that ECB will go up sometime in the next 20yrs.
Its probably 100k+ by number and 30pc by value of mortgages. The PTSB rate hikes will flush some out but it will dribble out over the next few years.

6

You’ll probably find that that was not actually a car loan but actually hire purchase, so not really the same thing.
Banks can and do repossess cars, which are bought on hire purchase. The do not in general repossess houses bought with lent money.

7

Extremely interesting none the less.

Car market is liquid, they can easily sell on repocessed cars, so they are lending.
House market is illiquid, they cannot/will not sell on repocessed houses, so they are not lending.

Heard already though that all car loans/hire purchase agreements require a heavty enough deposit.
Between 20-40% depending on your credit worthiness.

Bizarre that property market is so bad that they won’t simply adjust max loan and max LTV dependent on credit worthiness of applicant(s).

8

Hire Purchase Act
pay half and hand car back and they can’t touch you - car often worth less at that stage than o/s balance

also heard anecdote of hire purchase a car through a company and make first payment and then stop
takes them about 18 months to catch up with you at which stage you hand car back and you have had a free car for all that time

first one is legit, second one may be more difficult now but it was common enough in the “boom” times

9

Just a matter of time before they become rational.

10

Yes, that was the case. IIRC up to €15k it would have been a straight loan and above that it was HP. And it was clear to me at the time that reason the bank took these opposing positions (denying the mortgage but allowing the car finance) was that they knew the couldn’t repossess a house easily if I defaulted on a mortgage but they could easily repossess and sell a car.

11

Quick question for those in the know. Been working in an IT job for the last 7 years. If I up and move to a better paying job will it affect creditworthiness ?

12
  1. You movng within the same sector?
  2. New employeer been around for longer or shorter than current employer?

As for the OPs question : Yes (anecdotally).
Friends just bought a housr two months ago.
(75% LTV)

13

You have to be out of you probation period, which is typically 6 months, to get a loan.

14

Just so you know that the Spanish have come up with a novel plan to get the bankers to lend to businesses. Maybe we should try it here :slight_smile:

15

I just wish the Irish bankers would stop screwing me.