Mortgage Rule Changes: Will they work?

The Central Bank is set to announce mortgage lending eases which will allow households to borrow up to four times their income. What will this mean for home buyers?

Mortgage rules are set to be eased as you’ve been hearing on the headlines to the central bank may allow people to borrow up to four times their income and they were able to access loans of up to 3.5 times income and that will go up to four times that’s what the rumor machine is telling us we’ll have confirmation in a little while but to see how this might

Impact first-time buyers and the economy as a whole i’m joined by the management director of dotle.ie martina hennessey and by financial advisor and director on the irish banking culture board porter cassand good morning and welcome to you both martina first of all what impact will this have on the market a market that is short of supply but so pass a you know

Mortgage mortgages um are one element of the of the overall housing market and you know the the rules changing and the availability of additional finance for people to borrow and to buy homes and will mean that i suppose there could be more demand created within the market at a time when housing supply is short um housing supply is short so i’m wondering you

See my experience of looking at the construction industry and developers and so on is that they charge what the market will bear um not what the actual cost is adding a bit of profit and so on and sometimes developers around the time of the crash even had to get rid of stuff at a loss um so it’s about the market so if people have more money in their pockets when

They go to see new developments of houses surely that’s just going to push the price up i think pat no one wants to borrow more than they need to but the reality is that to allow people to buy at the moment based on the cost to build and especially for new homes you know people need to borrow more so it’s not that people want to borrow more but there is a need

Especially we would see with our clients particularly first-time buyers to be eligible to be able to borrow more where it’s affordable so while these increases of up to four times income multiple from three and a half if they do come into effect will mean people could borrow more the banks are still operating and stress testing mortgage applications that are coming

In the door so it’s not that there will be an automatic eligibility for everybody to borrow four times income we’re looking at a backdrop where interest rates are increasing cost of living is increasing and the banks aren’t going to i suppose you know lend in a manner that isn’t affordable for people but what what really the central banker looking at is the overall

Framework that they’re working under whether it’s still effective in the current economic environment where affordability is is in place and where people are kind of forward to borrow more this will just allow people to be able more and more and many to be able to get out of the current rent trap that they’re they’re in where they’re paying more in rent than they

Actually would be on a mortgage so while the rules are changing and it will increase the ability for people to borrow more it will be under measured kind of circumstances that the lender’s own credit risk and lending policy will still prevail so while you might see or might feel that this will increase the amount people can borrow we’re in again in an environment

Where rates are increasing and that in itself restricts the amount that people can borrow so you know obviously the the i suppose the concern is that it will lead to increased rate of lending or increased property prices but really it is measured it is going to be a measured impact see i’m wondering are there any develops that that are unsold i mean you see the

Odd housing development and apartment complex coming up for sale as you know most of the apartment complexes in the greater dublin area that are being finished are bill to rents which is another scandal in itself but anyway those complexes that are coming on stream housing and so on aren’t any of them left unsold is there not you know a bigger customer base for

Them than there is a supply yeah my clients would say that they’re still you know they still find it difficult to secure new bills they’re still waiting lists you know new bills years ago when they were being built or built off plans there wasn’t a sod turns on the land when they were being you know sold off plans now they’re being released as they’re being built

And there certainly is a huge demand there first-time buyers there’s a number of schemes which are um first and bars available such as the help to buy scheme the shared equity scheme which are for new build property so that increases demand for new build and because there’s you know sports there in place for first-time buyers in my experience with my clients it

Is a real challenge for them to secure a new build so i don’t believe that there is new builds that are sitting there waiting to be you know acquired i really think that the demand is the issue is our supply is the issue as opposed to demand yeah and what about old bills second-hand housing um is there a surface of that on the market because you see all i’m saying

Is that if you know that the the young couple coming through the door now have more money in their pockets thanks to the relaxation of the central bank rules um your asking price for that second-hand property may just step creep up that is a concern and it’s something that’s been voiced by by a lot of our clients we did a poll on our social media and you know to

Say will this help and there was certainly you know 30 of people thought it would definitely help but there was a concern 70 of people felt there were concerned that rates were that property prices would increase it’s yet to be determined but again it’s all to do with affordability when we’re talking about mortgages mortgages are one part of home buying and you

Know for mortgages it all comes down to affordability so these rules will allow people where it is affordable for them to purchase properties to purchase them uh you know to have more disposable or more um mortgage power to buy um and in effect you would have to feel that that may have some impact on on property prices but again the bigger concern is obviously

You know there has to be the supply element is the is the core challenge i think in home buying all right look martina thank you very much for contributing that’s martina hennessey the ceo of donald.ie porica sound listening to that poor good morning morning thought how are you good to speak to you again now what do you make of what looks like a decision by the

Central bank to allow people to borrow more um well there’s a couple of things i would say first of all just to to uh i suppose look back the rules were put in place initially in 2015 and it was essentially to prevent a further bubble in the market that had occurred in the 2008-2009 period so why it was put in place was to stop and prevent anyone over borrowing

And because i suppose the easiest way to put it the trust wasn’t there that the banks wouldn’t do it themselves and i heard that martinez saying that the the banks are prudent lenders there was a fear that the martin remain prudent lenders back in 15 and that’s why it came in now it certainly didn’t keep pace with where both the industry and the marketplace went

I mean generally speaking of olds and i’ve just actually gone back and authorized myself again as a mortgage intermediary through the central bank for the very reasons that you’re coming to in terms of supply and everything that comes here mortgages before were always lent on a percentage of your net income of what you could afford to repay and that was generally

Speaking throughout europe would have been between 30 and 40 percent the problem in ireland is a lot of those people that are looking to buy are spending 50 and 60 percent of net income on rent so the mortgage for example if you take a mortgage of 350 000 which is the max somebody could borrow let’s say yesterday over 30 years is the first time buyer that costing

13.72. 400 000 over 30 years is costing sixteen eleven but those people in that type of property purchase are renting probably a two and a half or three thousand per month and that’s the cash 20. no i i get i get the points and so many people want to get out of renting and particularly in the greater dublin area where rents are horrendously high but the point is

There’s nothing to buy so the limited amount of property that is there and the developers are just going to say well we have a commodity now that we were going to sell for 425 we should easily get 460 now well it does increase the amount so if you can borrow more it also increases the amount of the deposit you have and and part of the complaint has been that the

Only people and i don’t mean this generically across the entire industry but the only people able to afford properties up to now were people who had a substantial deposit or the gift of a deposit and they were the people who were qualifying within the rules as existed i think the central bank will have to look at moving it more towards the massive income costs of

The 30 or 35 percent of people’s net income should be affordable towards mortgage because realistically people are going to have to start stress testing the cost of a mortgage at five percent now we’re up to now two and three percent would have been more reasonable today with the future look of where interest rates are going to go it’s more likely that you need

To be considering five percent as as your repayment but if supply improved tomorrow morning this is absolutely to be welcomed pass if supply doesn’t improve it makes no difference it makes no difference but um you know for those developments coming on stream it does make a difference that the the providers of those developments will say well i can push up the price

We have a queue of people we now know that they are capable of getting more money from their lender because they have good incomes and so on and they’re going to get more money and let’s push it i believe pato that might be a desire but i think the reality is with increasing interest rates people what they had to pay for their mortgage a year ago compared to today

Has increased the cost per month so the property price is going to be affectable at any any day of the houses coming online that are trying to tell somebody that they will be able to to charge more because somebody can borrow more somebody can borrow more is paying more than they did this than last year the price of property in all increasing interest rates environments

Either stabilizes or decreases it has never continued to go up the only reason in ireland is unique is simply because there isn’t a supply of those houses so the central bank is kind of loosening the rules a little bit for people who are looking to buy a property however you’re suggesting that the banks are going to be the real arbiters of how much money is given

Out because it’ll be the nature of their stress testing that will determine how much people actually get which is why i think um if we go back to the net income and the what percentage of your net income are you paying towards a mortgage is a far better measurement than looking at the time salary particularly when that time salary is offer gross salary if you

Start looking at the net income and pat kenny decides he can afford to pay 35 or 30 percent of his income per month to a mortgage particularly now that we have long-term interest rates fixed rates so you can set your figure today and know that it’s never going to change for a longer period than it used to be that is a far better approach now if that equates back

To four times salary well then it all all the equation all works out generally speaking it doesn’t though and plus a lot of the first time buyers and and a lot of them that i’ve started to talk to and going back and doing mortgages now to advise people because the advice required in a rising interest rate environment is entirely different to how much can you borrow

Now as an intermediary port again you’ve now registered yourself again as a mortgage intermediary and will you have access access therefore to all the stress test methodologies of the different lenders because i i know that for example they might ask you do you have any loans out do you have a car loan do you have this loan do you have a maybe a student loan that

Has yet to be repaid they look at all of those things or they could will you have access to their methodologies well i think what i would do path was before i did when i meet somebody is take on the journey in other words there is little point in anyone borrowing money that is going to run into difficulty in the repayment of that money that serves no purpose so

For somebody not for me not to be able to assess what a car loans cost in order to turn on or a current account the behavior of an account holder or the behavior of a potential client is what i would watch in other words how ready are they to purchase a lot of this discussions that i have with people is about preparing for the purchase of a house which in other

Words might be we might be at the positive stage and we might be an application stage it’s it’s actually assisting them in the journey towards purchase and hopefully that will align with a a dramatic improvement in supply which is what is needed first and foremost in the country as we know both for renters and and for housing in general but for first-time buyers

In particular some of which are earning substantial levels of money in industries that are going to come under more and more pressure if we don’t supply that housing in order to fill the vacancies that are available all right porica interesting stuff and lots of people have views on this but uh for the moment poor cassan who’s a financial advisor and director on

The irish banking culture board uh thank you some of the texts coming in are very interesting changing these rules is tantamount to allowing more people into a supermarket that has empty shelves that’s from ed in celbridge deck and kildare says higher borrowing won’t improve affordability just allows some people pay higher prices strange that rules are relaxed as

Prices hit a record what is good for some individuals may not be in the collective interest uh two points one the easing of rules caused a bubble everything went up in price fiend of oil and labor stopped building council houses the vultures came in banks are bailed out they don’t care neither do the vultures this is going to cause another bubble things will get

Worse interesting one your dublin centric what the market will bear premise does not factor in the parts of the country where prices will not fetch the minimum actual cost of building which is two hundred and fifty thousand this stops development buyers then need help to borrow a higher amount so that builders can afford to build and get the price that it’s cost

Them bob says people have for years been paying more on rent than they would on the mortgage they seek just stop this barrier recognize rental payments and that won’t increase house prices and then no bigwigs will make the extra few bomb

Transcribed from video
Mortgage Rule Changes: Will they work? By Newstalk