Upcoming Budget: FTB Affordability

I reckon the net monthly payment for First Time Buyers will increase by 25% if the following changes are made in the upcoming budget:
(i) abolish Mortgage Interest Relief
(ii) introduce a property tax at 0.25% pa

Not sure how you paste in spreadsheets:

Assumptions are:
Property Value €125,000
Mortgage €100,000
Mortgage Term 25
Mortgage Interest 4.40%
Property Tax Rate 0.25%
Property Tax p.m. €26

Columns below are:
Annual Interest Paid
FTB Tax Relief
Tax Relief
Monthly Payment with Tax Relief
Monthly Payment without Tax Relief
Monthly Payment without Tax Relief and with Property Tax
Increase in Net Monthly payment
Percentage Increase in Net Monthly payment

1 €4,400 25.0% €1,100 €465 €556 €582 €118 25.3%
2 €4,300 25.0% €1,075 €467 €556 €582 €116 24.8%
3 €4,195 22.5% €944 €478 €556 €582 €105 21.9%
4 €4,086 22.5% €919 €480 €556 €582 €103 21.4%
5 €3,972 22.5% €894 €482 €556 €582 €101 20.9%

But land lords will get hit as well and pass on the cost to tenants so when you do the cost of buying v the cost of renting will it have changed much?

Also I would expect that come January the market will be tumble weed and price will fall slightly to take into account the loss of TRS this will mean borrowing less in the end you will save more on repayments than you will save on TRS

market in january will be tumbleweed no matter what government does or doesnt do re: MIR.
this threat of removing MIR has duped enough foolish FTBs to get off the shelf and purchase in the last couple of months. (cue ‘further significant evidence of property market stabilising’ headlines in 2/3 weeks time when november sales figures are known…media will fall over themselves.)
these foolish buyers will dwindle the number of FTBs who are ready to buy. those who havent bought by this month will undoubtedly not be willing to make any move til april/may 2013 i reckon by which time we’ll all see a ‘fresh’ drop in property prices from new years on. (5% drop in first 3 months of next year my prediction)

Landlord would like to pass it on but it is unlikely to filter through into rents

It could be 6 months before the decreasing affordability due to Budget / MIR / House tax / Water rates etc have any impact on house prices, so affordability will worsen for (IMHO) 6 months next year. In the short term the market is contracting in terms of supply and there is currently a slowly growing number of purchasers.

Unless the supply increases next year, the other factors above will see no long term affordability benefit. Of course if in 10 years time the gov rolls back the tax increases the lower sized mortgage holders are in a better position.
It’s more likely I will increase supply myself by leaving the country than anything positive happening here. At 43 I’m getting too old to be buying a house anyway.

Pleased to be proved wrong on my guesses / Just my 0.02c


I’m another person who would be more than pleased to be proved wrong, but I’m not convinced affordability is going to improve from where we are now. Firstly, there is the budget impact, which means that prices will have to fall just to stand still on the affordability metric. Second, I heard the other day that the number of people renting has increased by 50% since 2006. Now, some of those will be people who have no plans to buy, ever. Also, apparently this 50% increase means that we are only now approaching the proportion of households renting compared to other European countries.

Nevertheless, 50% is an astonishing number and, unless the Irish DNA has mutated beyond all recognition, many of these are potential buyers who have only temporarily deferred a purchasing decision. Furthermore, with the supply of family homes so constrained, it only takes a few people to go from renting to purchasing to put upward pressure on prices.

It has been argued that every renter who quits renting frees up a property to be purchased. But rental properties are not necessarily interchangeable with family homes. Also, arguably, these ex-renters are not the customers for 500k+ homes. But I still find it conceivable that this big increase in the rental market (which, by the way, is net of emigration) creates a pool of potential buyers who lubricate the wheels of the market and cause price increases across the board (or at least stave off further price drops).

Tens of thousands of new households are formed every year, who have to go somewhere. Most of them have no interest in the places where we have the big overhang of empty properties. And, relatively speaking, new home building has essentially stopped in this country.

Being a potential purchaser myself, I would dearly love to be wrong about this.

This sounds very familiar.

Is that you Landlord? :imp:

the main point being that affordability will not change but to maintain it, prices will drop?

+1 on that LL (by the way, I think that is the second smilie you have used today - I hope you aren’t on the slippery slope?)

The big affordability problem has been missed: Interest rates

More importantly the mortgage stress tests being carried out are now at around 6%.

Rate APR over 20 years
LTV Variable >80% 4.24% 4.32%
LTV Variable > 50%< =80% 4.04% 4.11%
LTV Variable< =50% 3.84% 3.90%
Standard Variable 4.00% 4.07%
1 Year Fixed 4.15% 4.08%
2 Year Fixed 4.65% 4.21%
3 Year Fixed 4.88% 4.35%
4 Year Fixed 5.15% 4.54%
5 Year Fixed 5.35% 4.74%

The rates will only go up from here. Stress tests are at +2%

With the recent 1% hike on AIB mortgage rates affordability has already been reduced by around 15% in the last few months.

I’ll happily take a reduced purchase price next year in exchange for static affordability, because I fear for the sustainability of today’s affordability.

I have some friends who took out a 360k tracker in 2008. Last they checked, while they have substantial negative equity, they’re paying what a SVR today would have cost them on a 265k mortgage. The house suits their needs with 2 children, and is in a suitable location for work schools etc in Dublin.

If someone bought in their estate, since using a 265k SVR mortgage, they are now in a comparable position in terms of mortgage. But what is the effect of a 1% increase in mortgage rates for one couple over the other? Long term sustainability/affordability fluctuates less on the smaller principal.

I’ll gladly take less exposure to interest rates in exchange for static ‘affordability’ based on reduced net income.

We can’t afford this Country never mind a gaff! :cry:

Yes, this a key point. Banks may be giving out slightly more mortgages, as proven in the IBF/PwC report, but the average mortgage amount will continue to decline under these increased stress tests and rate hikes

So what might work in favor of house price affordability in the near future?

Extension of mortgage interest relief? Perhaps.
Wage Inflation? 2%?
Lower oil prices?

Anyhow I doubt any of the above will alter the bank stress tests which are used to leverage house prices.

Lower oil prices? Not a hope

The negatives outweight the positives in the short term anyway

Suspend for good all current market price interventions.
Let the market find equilibrium sooner rather than later by opening it up and end NAMA and all uncertainty.
Remove all TAX and other incentives.
End current planning process and reform.
Allow all market signals and dynamics be heard unadulterated.
Use clean info to reform land usage approach.
Begin building a new world.
Involve everyone.

Wage inflation is a way off.

Static gross pay, reduced net pay and inflation combine as downward pressure on affordability - and a long, drawn out, reset of the economy to a sustainable footing.

The biggest fear for me would be interest rate increases to go along with inflation and wage restraint. This has happened locally, but not centrally in Frankfurt - yet. Household net income chez jammy is increasing due to career progression on both fronts, but it’s tough staying ahead of downward pressures like increased taxation and inflation. I only hope we hit the trough in downward pressure before the glass ceiling.

If all of the above were to happen house prices might actually increase.

What have yez done with the real OW? Let ‘the market’ be the grand arbiter? Never question or interfere with the “wisdom” of the markets? That worked out great during the boom. (Noting that ‘the market’ will always come knocking on the doors of power with little requests and offering little rewards for being facilitated etc. ). Now, ‘the market’ is still doing its thing, just this time through the looking glass… Still with full destructive effect, mind. The real OW used to talk about ending the “Housing Market” and the “Land Market”. I thought that made a lot of sense. Although OW was talking about nationalising these things which I didn’t entirely agree with. What changed? Just always the contrarian?

That was only for starters… you should have kept reading the best bit was…

“Build A new world involve everyone” :smiley: