Do First Time Buyers Default Less? Implications for Macro-prudential Policy

New Central Bank Economic Letter by Robert Kelly, Terry O’Malley and Conor O’Toole here.

11 replies on “Do First Time Buyers Default Less? Implications for Macro-prudential Policy”

The ‘First Time Buyer’ … Demise is nigh! Landlordism aw righ!

‘House buying will become the preserve of the wealthy and those on high incomes if restrictions on mortgages proposed by the Central Bank are introduced, the Department of Finance said in a submission.

The views of the department mean it is on a collision course with the Central Bank.

And a separate survey has found seven out of 10 people believe the requirement to have a 20pc deposit before getting a mortgage for a property will lock them out of the market.

In a submission to the Central Bank on the lending proposals, the Department of Finance said the proposed changes were “unduly restrictive” and would make it very difficult for most people to secure a mortgage.

Does any data exist on mortgage lenders’ experience over a number of property cycles, say back to the mid-1970s? By any stretch of the imagination the last 20 years, or certainly the last 15, have been beyond strange and, without in any way diminishing the work in the paper, it would be comforting to think that strange isn’t the new normal.

(I know the inflation seen in the 1975-1985 period was hardly what one would hope to call normal either, but at least house prices in the period maintained, for the most part, a sustainable relationship with average earnings.)


New research from economists based in the Central Bank shows that first-time buyers have lower default rates than other participants in the housing market.

The research appears to bolster the case for the Central Bank easing off on plans to impose strict lending restrictions on first-time buyers.

IMHO, 20% will accelerate human capital €migration from around here …. best, brightest will GO.

I agree with Aiman. The macro context is very strange. House prices are very volatile as capital flows in and out are too. Very hard to know how to regulate, I would say. The old method of having loads of buffers seemed to be more stable but neoliberalism wanted those buffers for betting.

If this report is designed to give the CB fig leaf cover for backing off on its 80% LTV in the case of FTBs, then it is poor cover indeed.
This is not to criticise the paper, merely to observe that any difference between FTB and SSBs (second and subsequent buyers) appears pretty small.

Table 1 of the report shows a very significant 24.8% difference in the size of the loans extended to SSBs versus FTBs, and while the report mentions this, it is not given prominence or sufficient explanation.

@David O’Donnell

re: DOF crocodile tears
“‘House buying will become the preserve of the wealthy and those on high incomes if restrictions on mortgages proposed by the Central Bank are introduced, the Department of Finance said in a submission.”

The DOF drove the policy of reestablishing the prominence of landlords in the Irish housing. They did this through manipulating a supply shortage to drive prices up, CGT exemptions for investors, introducing REITS..
Now they are trying to shunt the fallout onto the Central Bank.
Honohan should stick to his guns and force the problem of housing cost back where it belongs, to the cabinet table.

Yesterday, a prominent builder said that until house prices reached 200K in Laois, they could not build. Fair Enough.
But why then can we not have 200K houses in Dublin.

Ronan Lyons has called for an audit of cost of building houses. He does not seems to have many supporters. There have also been calls for Minister for Housing (not just social housing), but no takers there either.

Fergus O’Dowds ‘sinister forces’ seem to have hold in many government departments and not merely the Department of the Environment.

@ airman: The Great Financialization (of Irish residential housing) started slowly in mid-70s – had a few ups and downs, picked up some steam in the late 1990s, faltered in 2000-2002, then took off like a Michael Noonan rocket: the rocked flamed out in 2007 and is still stranded in an earth orbit.

I read through that latest CB paper. The least said about its message the better: its relevancy is quite questionable. JR above, is some what generous in calling it a Fig Leaf. More like a single strand of scutch grass.

Home purchasing is the single-most expensive financial action most folk will ever undertake. And despite the propaganda from the usual idiots, your home is never an investment nor a personal ATM that you can extract cash from. Its a money ‘black hole’.

The old financial model of home mortgages was predicated upon such mundane and boring stuff as: – a steady advancement in population and family home formation; a steady advancement in inflation (3%-4%); a steady advancement in wages and incomes. The financial risk to the lender was known and low. However, the financial risks of an individual borrower were unknown – other than with some moderate level of probability, but a financial shock would have wiped them out. No so the lenders – and so they tended to be very careful with their lending protocols. They were concerned to protect the borrower (who carried the major risk) and had little by way of a financial buffer.

The new financial model is that you Meanize (as in averaging) everything. The mean price; the mean income; the mean purchaser; the mean risks etc., etc. until you a brew up a meaningless, risk-free, homogenized actuarial paplum. The risk to individual borrowers is simply ‘waved away’ – whereas in reality, it still abides – as individual risk always does. The mortgage lending protocols – re-named as Macroprudential something-or-other, are in practice so weak as to leave the financial buffer between the borrower and default as little more than a virtual ‘wing-and-a-prayer’. And folk wonder why there is now, after nearly two decades of this new model – a 20%+ PPR mortgage default rate! Its incomprehensible.

Its the income issue which is the present difficulty for all borrowers, not just that poor, unfortunate, downtrodden, ladder-less, abject object of our deeply held sympathy, The First-time Buyer. Household incomes for all purchasers have not inflated in parallel with the prices of PPRs. So we need to have immediate and significant increases in incomes and wages. Fix the income and price disparities and the home mortgage job is OXO!

So, what are the prohibited alternates? Well you could coerce PPR values down by 60%. You could write-off (or down) all negative equity and non-performing loans: no recourses. Just let the borrowers either stay where they are or leave voluntarily. You could also restructure the lease laws and let folk rent their home for decades.

But the genuine empathy extended to ‘poor’ lenders is of several orders of magnitude greater than the virtual empathy extended to financially distressed home owners. In fact borrowers are subject to advanced levels of ‘fear-and-loathing’ – “Just ‘suck-it-up’ suckers!”

You can never ‘regulate’ the PPR sectors: don’t even attempt it. The best you could do is to appeal to the noble sentiments of the lenders to avoid situations of distress – which we know from long experience was the norm.

An alternative might be to Constitutionally prohibit the creation of fiat credit by any Irish-based financial institution regulated by the ICB or any EZ CB. Let the ECB decide how much credit the Irish banks should have available for PPR mortgages. If the ECB or Commission no likee! – just tell them to get stuffed, and mean it!

Irish taxpayers are now almost bollock naked in respect of the debt losses of private banks. The next time we have to make good their gambling losses it will be from our savings and pensions, rather than our incomes. Remember Cyprus!

This financial crisis has a bit left in it yet.


I’ve no idea why your comments, coherent and otherwise, were addressed to me. They bore no relation to the questions I asked.

But thanks for (maybe) reading.

I may not have read sufficiently carefully, but do SSBs (second and subsequent buyers) in the paper include buy-to-renters? If so, there is a rather obvious reason why their default rate would be higher that is not referenced in the paper.

@airman: apols- cognitive dissonance probably. Coherent? Questionable – per usual. Brian.

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