Mortgage Madness...

[Peadar]

Taken from todays Irish Independent.

BANKS and building societies have been given the green light to bring in mortgages as high as 120pc.

As the market comes to terms with the first home loans of 100pc, lenders were told yesterday that no obstacle would be put in their way if they wish to offer the super-mortgages which are popular in Britain and the USA.

The Financial Regulator said it would not oppose the move.

"I don't think the financial institution can stand in the way of a person's constitutional right to make mistakes," said the regulator's chief executive, Liam O'Reilly.

In the end, borrowers and investors must make their own decisions and live with the consequences, he added.

On one hand I agree that it's between the lender and the borrower but I fear for the consequences this may have down the line.

[wws]

Taken from todays Irish Independent.



On one hand I agree that it's between the lender and the borrower but I fear for the consequences this may have down the line.

gimmick alert****
gimmick alert****


given that they will asses the total amount your eligible for i cant see how anything has changed = a 120% mortgatge is just a 100% mortgatge - cos they assess a limit on what can you borrow based on the same criteria for every loan

[monutdfc]

How do you work that out?
A house costs €300,000.
A 100% mortgage - they lend you €300,000.
A 120% mortgage - they lend you €360,000.

[fosterdollar]

This fcuking country

[Peadar]

Looks like someone isn't happy that it's only a gimmick and nothing to fear.

Taken from BreakingNews.ie

The Consumers Association has called on the financial regulator to impose a ban on 120% mortgages before they are introduced by Irish banks and building societies.

Yesterday, the Irish Financial Services Regulatory Authority said it was not oppose the introduction of such products, despite describing them as "irresponsible".

How do you work that out?

There are additional costs such as legal fees and furnishing your house which make buying a house more expensive than the sale price.

[wws]

How do you work that out?
A house costs €300,000.
A 100% mortgage - they lend you €300,000.
A 120% mortgage - they lend you €360,000.

if you are eligible for a 300,000 mortgage - you are eligible for a 300,000 mortgage. Full stop.

the only change is that you no longer require a deposit. As I said, gimmick designed to sway punters in a hysterical market

[pete]

I thought this was a strange one when i heard this morning as wasn't too long ago when the regulator complainng about mortgages 3 multiples of salary.

120% would be insane if true.

Solicitor fees should really be no more than 1% of house price.
No one needs 195 to furnish their home.

Would mean alomst 70k to furnish a 350k home, Most you need would be 10%.

[fosterdollar]

There are additional costs such as legal fees and furnishing your house which make buying a house more expensive than the sale price.

This doesn't detract from the fact that the customer gets more money from a 120% mortgage than from a 100% one. Their negative equity from the outset is even worse.

However, my annoyance would be that, like the 100pc mortgages, the majority of successful candidates will be b@starding second time buyers who single handedly are keeping me and nearly all my peers in rented accomodation and are filling every new belt of rezoned land in dublin and other places with poxy timber framed apartment blocks. A pox on them.

[monutdfc]

There are additional costs such as legal fees and furnishing your house which make buying a house more expensive than the sale price.

I know that. I was asking wws how he works out that a 360,000 loan on a 300,000 house is still only a 100% mortgage.
Mortgage lending is asset-backed lending. If they approve you for a 300k mortgage and you buy a 250k house with a 300k loan then the risk to the lender is much greater than if you buy a 300k house or a 350k house. For 2 reasons: (1) because you have no equity in the house, you are more likely to hand in your keys if you lose your job or cannot make the repayments fro whatever reason and (2) if you do lose your job the bank has an asset worth less than the loan outstanding and so cannot recover the full debt with a sale. This happened all over the place in the UK in the early 1990's.

[wws]

I know that. I was asking wws how he works out that a 360,000 loan on a 300,000 house is still only a 100% mortgage.
Mortgage lending is asset-backed lending. If they approve you for a 300k mortgage and you buy a 250k house with a 300k loan then the risk to the lender is much greater than if you buy a 300k house or a 350k house. For 2 reasons: (1) because you have no equity in the house, you are more likely to hand in your keys if you lose your job or cannot make the repayments fro whatever reason and (2) if you do lose your job the bank has an asset worth less than the loan outstanding and so cannot recover the full debt with a sale. This happened all over the place in the UK in the early 1990's.

I think what I'm getting at is that first time buyers (supposedly the target of the 100% mortgatges and maybe this?) will not get 20% extra in their loan - they are still assessed on the same income criteria and ability to repay that held up to now in the various lending institutions - so they get the same amount (same limit) only this time they no longer have to stump up the deposit. For first time buyers the total loan amount and not a percentage is the critical factor in what price house they can afford. I think people may construe this as saying oh look we get 20% more than we got under the old rules - which isnt the case.

[Peadar]

Their negative equity from the outset is even worse.

It is rare that property in Ireland becomes negative equity.
Unlike a car, which is pretty much losing value from the moment you sit behind the wheel, property essentially gains value.

Obviously a dramatic change in the market could result in negative equity but that's not a problem if you don't need to move house and can continue to meet your repayments. You just have to ride out the storm as it were.

[fosterdollar]

As monutdfc pointed out, the loan is asset backed. So, if the applicant loses their income some years down the line and they decide to forfeit the house then, under this system, they have been given 120% of the value of the house and the value of the house may be less than what they owe to the bank (even without taking interest into account). This is an issue entirely independent of their ability to repay the loan at the time of application.

It may be rare for people to find themselves with negative equity at the moment Peader, but surely there is inference of having to start from the point of negative equity under a 120% lending arrangement.

[Schumi]

Does this mean that you can get a 360k loan with only a 300k house as security? What's to stop you legging it with the extra 60k?

[strangeirish]

I wonder if all this has stemmed from the massive housing boom over here in the US, with the investors over here being extremely aggressive.This leads Mortgage Lenders to become highly creative. With a 120% mortgage and appreciation rates over here going in some area's as high as 18% per annum, in the minds of the investor, it's not going to take long for the negative equity to dissapate. The problems are going to occur when the housing bubble bursts and a lot of new homeowners are going to be in trouble. What's going to happen when you try to sell your home for more than it's worth and you have negative equity of about $60K? Not a pretty thought. Oh and another thing, in the US on a new puchase you are limited to a 107% mortgage. On refinance and debt consolidation transactions, you can go as high as 130%!

[beautifulrock]

It is rare that property in Ireland becomes negative equity.

Peader that is indeed true up to now as Ireland never really had house price inflation. However, I am very afraid that the introduction of 100% mortgage will be the start of negativity equity problems in Ireland. I think that in the very near future we have to expect a house price correction. In the UK they expect that to happen every 10 years or so. The last one happened from 89 - 91 so you could argue that one is overdue. As it happens house prices have fell year on year for the last 13 months. Just for information the avergage house fell 40% in the UK during the the last correction period.