Irish Mortgage Brokers Blog

It seems that dithering is not the answer.

There are two sets of statistics floating around; on one hand you have the banks who claim that they are lending and also that the demand for credit simply isn’t there - a belief further expounded by John Trethowan. Then on the other hand you have the likes of PIBA who counter claim that 80% of applications are being refused.

So it is important to break down the vital components. First of all, the debate often centres around Small Medium Enterprise (SME) lending; even if demand for that type of credit isn’t there it doesn’t automatically translate into a reduced demand for mortgages. The point being that we can’t compare SME loans/business loan demand to that for mortgage credit.

Secondly is ‘what constitutes a refusal’, and this is where common sense diverges. Even the bank accept that if you seek €200,000 and are only offered €100,000 that it is a loan not fit for purpose, this even goes for SME loans - imagine trying to borrow 80% of a machine purchase at 200k and then trying to come up with €60,000 you can’t raise? Mortgages are no different, if people don’t have the ability to bridge the difference between the purchase price less their deposit and the loan sanctioned then it is an effective refusal.

If one wanted to be cynical, they would advise the banks to say ‘yes’ to absolutely everybody and only offer them €100 maximum. This ruse would be quickly seen for what it was, and yet when you add in a few zero’s and

Having given the banks support to the point of no return it now seems acceptable for even the Credit Review Office to use the ‘reduced demand’ argument to tacitly approve the strong chance that BOI & AIB will miss their combined lending target of €6,000,000,000 to Irish companies over two years.

If you have no demand in one area then why not funnel those funds which ‘must be lent’ to wherever the willing borrowers are? That our vested interest comes into this is evident - but it is frustrating to see a market down 95% and the issue of loan supply being a strong driver in the lack of transactions.

The vast majority of people who want to purchase a property simply cannot get past the underwriting hounds who have gone from being puppies in the last decade to being dogs at the gates of hell over the last two years. And the blurring of lines between different types of credit and the gathering of statistics give two totally different stories, but much like any cake, you have to look at the ingredients going into it, and in our opinion at least, the way ‘approvals’ are counted and accounted for is wrong, meaning credit is nowhere near as available as we are told it is.

The Tobin tax was a transaction tax first mooted in the 70’s, it was meant to be a tax that would reduce blatant speculation in currency markets.

The revived idea of a ‘financial transaction tax‘ is as flawed now as it was then, because it will likely hurt investment, reduce liquidity and institutions will pass on the cost to private individuals as was seen in the example of Sweden who implemented one for several years in the 80’s. .

However, there are issues in the current market which are distortionary and where a tax might aid the market and reduce volatility, I’m talking about algorithmic trading and high frequency trading. Much of the volume (on US exchanges estimated at c.60%) is not due to people making calls on the market, rather it is on computers that execute trades in short amounts of time, taking a minute profit each time - in many cases they do it just to earn the exchange commission (a fee the actual stock exchanges pays to active traders).

The financial arms race is at the point where people are putting machines in the actual stock exchanges just so that they can get an extra nano-second upper hand on people outside of the exchange, is this the ideal of price discovery or is it a rent seeking activity? I would go with the latter.

So the tax would instead be a Pigovian tax rather than a Tobin tax. A Pigovian tax is there to reduce undesirable outcomes (negative externalities in economist speak), if you decided that algorithmic trades are part of the issue then you could tax based on the time a share was held even if it sells at a loss. This would reduce liquidity provided by the algorithmic trades but is liquidity a universal good and would it exist without algorithmic trades?

This approach would be better than outright bans on short-selling, which do not aid in market transparency. It would also be a more easily understood (by the public as opposed to practitioners only) solution than the up-tick rule which is really only there to punish a short to some extent.

A tax based on the time an investment is held could go to zero after 24 hours, the point is that it would eradicate much of the black box activity which is dominated by investment banks at present. You could argue that this is a fair hedge, but was the idea of electronic trading to use the speed of light as the ‘investors edge’?

Ockhams razor applies on this one in my opinion, and leads to a ‘no’. It only exists and an investors edge because it can be utilized and lead to certain outcomes, not because it serves a market function of itself. Which is why a sliding scale based on the time a security is held may be a good idea (or maybe not?!).

A regular household investor would likely never face this tax, it would specifically be something that allows speculation but taxes the brand of it that is operating in an area of the market where only machines trade, there are not humans capable of doing what the algorithmic traders do, they can programme the function but a human can’t do it as fast.

This may reduce the efficiency of an organization, one could argue that having a machine do a trade faster is efficient and therefore reduces the bottom line, while I empathize with that opinion, I cannot sympathize with it because the frequency and the machine actioned trades are the problem, not the platform.

Algorithms are not the devil, nor can we blame them, but they are not there to create an efficient market, they are there to give a certain group of investment banks who spent a lot of money on them a rent collecting ability. Thus the need to tax that activity, if it must exist and they cannot prove the advantage to society general (because the disadvantages are clear) then pay up.

The preference for letting property for 1 year is often suitable for both tenant and landlord alike, however, if we do start to see people showing a propensity for longer term renting then creating a lease that facilitates this is vital.

The fact is that the ‘12 month term’ is partly irrelevant, what it does do is set out the terms and agreements; but during that 12 months the renter obtains the right to stay for a longer period under ‘Part 4′ of the Residential tenancies act 2004 (a 4yr cycle).

This is often a point of contention in eviction cases, so it is vital that people wishing to avail of Part 4 write to the landlord stating this between 3 and 1 months before the end of the tenancy date, although it can exist even without notification being given.

But today we’ll assume that both parties to the lease want to engage in a longer term choice. There are a few primary issues that each of them will want to cover.

1. Who pays for certain aspects of the upkeep? It is a good idea to sit down and negotiate this point and have it written into the lease, so mowing lawns (for instance) may be assumed to be the landlords responsibility -it is – but if you agree to have the tenant do it then it should stand.
2. Rent reviews is a big one, a longer lease comes with the risk that the person can fix their cost going forward, for this reason we would suggest doing two things. Firstly have a review date, and secondly have a ‘collar’. The review date needs agreement, so every two or three years would be a good idea. The ‘collar’ sets out the change – so if you had a 15% collar it would mean that the rent at that review date cannot go up or down by more than 15% and otherwise you set it at ‘market rent’.
3. The ‘market rent’ should be the average of two estate agent opinions, one from each party; not ideal, perhaps not even totally accurate but it is a way to ensure that 3rd party opinion is front and centre rather than personal battle on the topic.

These are the two main considerations, there may be others for wear & tear and maintenance of other things that you may want to negotiate on. Negotiating at the outset doesn’t guarantee results, naturally, at any point either party can renege on their agreement and revert to the PRTB or courts or otherwise, but it does take care of the majority of issues you might encounter.

Agreeing these things in advance also sets out pricing which is one of the main concerns of a renter (along with quality levels/location etc.).

This is based on research from the Broker/Life Assurance industry, so put on your filters, but nonetheless it is interesting.

1 in every 2 adults (1.6 million people) have NO Life cover or protection of any kind, but 9 out of 10 people admit to needing it.

1 in 5 people (360,000 families) are considering taking out life cover in the next 12 months, but most think it is dearer than it is.

Engagement is the big issue – almost 60% of people say they are simply not being asked.
On the last point, it seems we have some more phone calls to make!

Don’t watch this if you want to sleep well tonight.

The Banker has an excellent article on this in their Bank Trends section. A picture speaks a thousand words!

There were some excellent presentations at the EHES this year, where some of the worlds leading historians, economists and economic historians gathered to share their thoughts.

The first video is excellent, Bob Allen of Oxford talks about why the Industrial Revolution was (in his opinion) a result of high wages and lower energy costs - which lead to a preference for technical innovation. Deirdre McCloskey of Chicago University offers excellent criticism in the questions at the end. Apologies for the sound quality, Bob had a tendency to move away from the mic and I wasn’t using a remote one.

In the next video Branko Milanovic talks about income distributions in the Mediterranean countries 2,000 years ago, and using very sparse data creates a compelling view of income from that time, what I took from this one was that income inequality has always been alive and well, a Roman Senator made about 500 times the wages of a regular worker (watch the video!).

Then there is a Roundtable discussion featuring the ‘who’s who’ of economic history

Fascinating video (that takes some time but is well worth it). This video looks at the various issues surrounding growth.

One of the great things about the internet is the democratization of opinion (it is perhaps also the downside!), and this piece is an interesting one that one looks at the distortion of certain activities in the area of job creation.

Doing so in a quasi ‘Cat in the Hat’ style, agree or not I have to admire the creative approach towards explaining political/economic dilemmas.