The Chinese famously have the concept of Si Da Jian (“four big things”) which are possessions that are commonly sought after by the ordinary man (and woman). And the table below shows how these objects of desire have changed over the years.
And just as young Changs and Meis have their hearts set on possessions, so do our own Oisins and Niamhs. And just like their Chinese counterparts going forth in the world, cars, appliances, homes and gadgets are very important here. Of course with the younger consumer wanting to acquire all of these at once and without savings or the best paying job, credit is often a necessity. So a mortgage for the home and personal loans for cars and furniture are not uncommon. Of course credit isn’t just for the youngsters but people famously tend to rein in discretionary spending as they get older and savings, existing assets and better jobs mean that purchases can better be paid for in cash.
Up to now, Ireland was one of the few countries in Europe not having a system to place overall limits on the overall credit exposure of an individual. All of this may be set to change with the announcement, reported by the Independent today, by the Financial Regulator of a proposal to set a cap on credit exposure.
What this is likely to mean is that home loans offered by banks will tend to reduce in value and indeed in some cases, the scale of existing (unsecured, and generally for fast depreciating goods) credit will mean a refusal for any mortgage.
It is of course a responsible step – no state wants to see its citizens so recklessly overstretched so as to be unable to meet credit commitments and then face financial ruin. However, a consequence is likely to be a reduction in the sums available for home purchase, particularly to First Time Buyers who are most likely to have other credit commitments and where consumer products and services and cars may be a higher priority than a home purchase. This will tend to depress home prices and given the significance of First Time Buyers to the market – they made up the biggest segment (33.5% of the total) of mortgage lending in Q1, 2010 – the effect of the introduction of the credit monitoring system could seriously impact home prices particularly at the lower end of the market.
NAMA Wine Lake 