Lack of lending needs to be addressed

Lack of lending needs to be addressed

All the incentives in the world to buy property won't work unless financial institutions start to regularly lend again

The revelation earlier this week that just two banks are now lending to first time buyers would’ve come as little surprise to many looking to get on the property ladder.

The banks have stated for some time that they are giving out loans but all the evidence would appear to state the contrary.

Yes, 2012 has witnessed a bit of a boost for the property market in the first two months of the year but with some estate agents reporting that cash buyers are now accounting for over 30% of their business, many who don’t have the luxury of cash reserves are being prevented from buying.

A report earlier this week revealed that only two banks – AIB and Bank of Ireland – are now willing to lend to first-time buyers. The news followed KBC’s decision to effectively pull the shutters down on mortgage lending to new buyers by insisting they have at least 20% of a deposit. To put that into context, it would mean that a first time buyer who have to put €40,000 of their own money towards the price of a €200,000 house.

Other banks are being just as tight with the likes of Permanent TSB, Ulster Bank, National Irish Bank and EBS reported to be extremely reluctant to lend to young borrowers.

No one is expecting banks to be as reckless with money as they were during the boom years but their hesitancy is severely hindering the market and, in turn, local economies as those who buy homes will in turn be looking to buy the likes of furniture, carpets, TVs and other household items.

This week’s MyHome.ie survey revealed that three out of four first time buyers believe they have enough money to pay for a deposit on a home but that money is little good to them if they cannot get the remainder of the finance from the banks.

These are the same banks who have been bailed out by the Irish taxpayer and who have been given funds in recent times by the European Central Bank in order to get the economy moving again.

Ask any bank official on the record whether his or her institution is lending or not and they’ll tell you “of course” but whether that be true or not, the vast majority of people don’t believe it.

Our survey – conducted before this week’s revelations – showed that 65% of homeowners do not believe financial institutions are lending, with 43% of them insisting they were over-regulated or over-cautious. Optimism was slightly up amongst first-time buyers, with just 52% believing that financial institutions were not lending but that’s still well off what it should be.

It’s not just homeowners or potential homeowners who are complaining either, with Irish Hotels’ Federation president Michael Vaughan also highlighting the lack of available credit as a major obstacle for the hotel industry to overcome.

The reality is that unless access to finance is freed up then transactions will remain low.

Minister for Finance Michael Noonan with a copy of Budget 2012, which included a number of incentives for first time buyers to purchase this year

Considering the incentives that Minister for Finance Michael Noonan introduced in last December’s Budget to encourage first-time buyers to buy in 2012, surely the time has come for the government to intervene and force the banks into lending more.

We’re a quarter of the way through the year now and the promised funds haven’t arrived. The banks being cautious is understandable but the harsh lessons of the past shouldn’t prevent a new and younger generation from being able to purchase their own home.

Hopefully there is light at the end of the tunnel though with some hope taken from the fact that an Oireachtas Committee recommended this week that banks should not have the final say on who gets a mortgage write-down. They suggested an appeals mechanism would be put in place.

That, at least, would ensure fair play, which many feel they aren’t getting at present.

As always we want to know your thoughts though so please take the time to answer a few of our questions and have your say in the comments section below.

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There are 15 comments for this article
  1. Nelly Leinnonahan at 7:52 pm

    Is gangster Bertie on the BOD of any bank? Or has he creamed off enough of our GDP to retire in a foreign land and slope off in disgrace?

  2. Frank Bodley at 4:20 pm

    Sure the lack of lending needs to be addressed but until the Banks are punished for this lack they won’t lend. You can increase their capital ratio limits, or better still prevent them laying off cheap ECB handouts to other banks but the Government has not got the back bone to do it

  3. Frank Bodley at 4:09 pm

    I am a Mortgage Broker.Pemanent Tsb are lending to first time borrowers and are quick to respond. I find them the best responders and very helpful. I deal with them for all my clients buying private dwelling homes and the AIB for Residential Investment properties. The AIB’s interest rate for Investment properties is the best on the market.

    Its incredible the 1% allocation given to Permanent. That’s not my experience.
    Frank Bodley

  4. Stephen at 2:55 pm

    The current ‘caution’ may seem unreasonable to some, but that is only because it is in the context of ten to fifteen years of complete recklessness.

    Having a 10% deposit should be an absolute immutable minimum requirement. Requiring 15% or 20% deposit is not at all unreasonable given the current direction of the housing market – it’s pretty clear, and largely agreed, that there is likely further drops of anything from 10% to 30% off current prices. So a 20% deposit is simply and attempt to ensure that the purchase will not end up in negative equity adding to our already massive glut of such mortgages.

    If you want to argue for ‘reasonable’ lending criteria then examine thoroughly the criteria that have been applied in the past in various markets and which of them worked well at keeping the market healthy. I think you’ll find that in most cases a relaxation of the criteria was involved in the ultimate collapse of many markets.

    In essence the guidelines should be strict enough to ensure that a borrower will be able to repay the mortgage. Anything else is a disservice to borrowers.

  5. Tony M. at 2:09 pm

    In my view, I don’t think the banks are overly punitive in their lending practices in respect to residential property.
    The current lending requirements are based on consideration of a person’s ability to repay the loan.
    Going forward, permanent jobs are likely to be less a feature of how employers deal with their recruitment needs; for the employee it will likely become the case that it is less and less easy to secure long-term work. I believe there is a global trend that is moving steadily toward short contract work, rather than offering long-term job security. Contract work will increasingly dominate.

    For a lot of people traditionally in the mid to lower income categories in Ireland, I believe they will find it increasingly harder to secure large mortgages; without large down payments. This is being evidenced currently with first time buyers.
    I don’t think this is not banks being unnecessarily punitive; it just reflects the actual reflects the reality of the conditions people are increasingly finding themselves in. Increased regulation surrounding lending practices is reflecting this, and regulation is now also a feature that will be forced to take peoples foreseeable circumstances into consideration when people are applying for credit.

    For the individual, flexibility and mobility are likely being the key ingredients if they wish to secure and maintain employment throughout their entire work- life. Retirement age is now extended outward in response to the shortfall in provision made for future population’s pension needs. People are being asked to work longer. Based on mortality figures (CSO figures) people will likely require state pensions. if they exist, for much shorter periods. On average 5 years of their lifetime which in statistical terms based on expected life span may be quite a significant write-down in respect to pension payouts.

    There is still a lot of unhelpful references made to the term ‘property ladder’ by the property people, in my view. I think this term is misleading in the current climate; it suggests that market forces are favourable for investment in residential property in Ireland. I don’t think this is the case…!
    I also think the term ‘property ladder’ is a construct of the past and needs to be deconstructed and sold off for firewood. It’s an idea that was imprinted in the conscientiousness of people made increasingly desperate to put a roof over their heads; and hopefully make some provision for their retirement. The existence of this term serves only the now terrified sellers, who are attempting to o get out with some skin left. This term was facilitated to flourish in an environment of available cheap credit, high earnings based on overtime and bonus payments and the notion of job security.

    In my view, like or dislike, the runs of this particular ladder have truly given way; getting down this crumbling frame and to relative safely I’d imagine is now the preoccupation of many great minds across the country. Climbing further upward – an option presently being promoted by certain stakeholders as a means of diverting the inevitable from the door, their door – is not new heights I would be aspiring to reach!
    In a country where there is a gross over-supply of housing and a vastly reduced demand for property basic Economics tell us that the value of a property is not the price the buyer is willing to pay; it is the price the buyer can pay! This may be a terrifying reality for anyone who is invested heavily in property and is looking for an out…
    However, in my view, there are still a number of barriers holding house prices at an unnaturally high level in Ireland still despite recorded falls of 50% and more. I do believe that the next year or two will force the unfortunate reality of the property situation into peoples’ conscientiousness, and at that juncture the natural forces of the market will pervade and a true value of residential property will then emerge.

    Comments, corrections and criticisms are welcome

  6. Amanda at 11:02 am

    I think they are looking for to much now the 1st time buyers have to come up with to much e.g down payment and then they have to have so much money left over in there wages people can live on less than others! Why is the people who were realistic in the boom and new they couldnt afford a mortgage suffering now.

  7. Paddy, Realistic at 10:22 am

    A 20% deposit should be demanded from every house purchaser, and more from buy-to-let buyers. This is the norm in sensible countries such as Switzerland where they currently have a steady low single figure growth in house prices. The Irish economic disaster which led to 450,000 people on the dole and 50,000 per year emigrating was caused by 100% loans and the irresponsible attitude of house buyers and banks.
    In the light of our recent history and the painful present situation, I find it incredible that anyone asks for easy low deposit credit to be extended while house prices are falling by around 2% per month.

  8. martin merriman at 9:46 am

    I HAVE BEEN WITH THE EBS FOR NEARLY TWENTY YEARS AND HAVE NEVER MISSED A REPAYMENT,I OWE THEM €177.000 AND WANT TO PAY THEM BACK IN FULL ON THE SALE OF OUR HOUSE,AND THEN BORROW AROUND €100.000
    TO BUY A NEW HOUSE,I HAVE 50% OF THE DEPOSIT,BUT WE WERE REFUSED,WHICH IS CRAZY

  9. Vinny at 9:40 am

    The fact remains that house prices are still too high. People have learned from the bubble. And so, it seems, have the banks. This country needs to realise that higher house prices are not a good thing. The lower the better for the economy as a whole.

  10. Stephen at 9:33 am

    Totally agree that banks are just not playing their part in the regeneration of the Irish Economy. As a Mortgage Broker I reluctantly have to say NO to very good mortgage applications everyday. It should be enough if a mortgage applicant has a good income for the loan amount sought, a proven repayment capacity and access to a 10% deposit. However this is not always enough. The Banks will and do find a way to turn even the best applications down.
    I agree that banks do have to be alot more cautious and savy with our (the taxpayers money), however they are not helping anyone, themselves included, with their shocking lack of lending to prospective homeowners

  11. Barry at 9:28 am

    Just got approved for a mortgage. Had 3 banks haunting us with calls for our business. Seems this is all a myth and hearsay.

  12. BrendanK at 9:27 am

    Seriously – some awful reporting above.

    “The revelation earlier this week that just two banks are now lending to first time buyers…” you go on to say actually no it’s 3 but you need some magical item that’s not been heard or seen for years and years…a …. large…. deposit.
    Banks are lending. Fact. To avail of lending you need to prove you have a healthy deposit, evidence of savings history, can repay and be witihn stress tests. There really is no mystery – it is that simple.

    You cannot whinge about reckless boom time bank policies crippling us, then whinge that they’ve implemented policies to protect themselves and us the taxpayer from a future bailout – get real.

    “banks have stated for some time that they are giving out loans but all the evidence would appear to state the contrary”

    Based on your statement – you have evidence to suggest that there is NO (zero, zilch, zip) lending from banks. Please produce the evidence to support “no lending” – or perhaps, revise your statement to remove the reference to material you know to be absolutely false.
    Less lending – fine, qualify that – fine, state there is none when you know to be false – what’s another word for that…?

    e.g. Irish Times Vs Irish Independent Glass half Full Vs Glass half Empty using the same sets of data!

    For those of us interested in buying / selling – ultimately it’s what is right for you, yourself.
    However in the mean time, as we try to figure out when and why it’s right, “MyHome” we rely on sources like you to give it to us straight – no fluff pieces, scare tactics etc…. PLEASE!

  13. Eric Mitchell at 9:17 am

    Appiled for loan with BOI. Had more money on deposit with bank than the loan requested. Waited 2 months to be told NO!!

    Rang bank to complain told the bank I was going to call Live line and if like magic got the loan. The
    money offered was a smaller amount.

  14. Paul at 9:12 am

    The banks have shifted most staff into managing collections(arrears) so they effectively do not have a new business department.Until they address the arrears situation in a meaningful way with the money provided by the Taxpayer via the Government no new business will happen. Further massive redundancies will amplify this situation.When the Banks create PR advertising campaigns to show they are lending you can be sure the shutters are down.
    The market is ready to operate if money was made available as their is a built up requirement for people to buy/move over the past number of years. I think most people have learned their lessons and are astutely aware of their financial positions and what they can afford to borrow perhaps more so than the banks do (past experience proves this 110% mortgages etc).
    The activity of this market could only be good for the economy in with regard to tax revenues and employment created.

  15. Paul Browne at 9:01 am

    First off, can we desist with the now defunct phrase “property ladder”. There is no ‘ladder’. Plenty snakes. The word ‘ladder’ in the past suggested that the only way was up. Are we stupidly brazen enough to suggest that once prices stop falling, stablise and begin to rise (if they ever do..NO certainty) that they won’t fall again?

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