Budget 2008, Stamp duty reform & Mortgage Interest relief:

The budget was released yesterday and the two things of particular note to any of us with an interest in property are changes in Stamp Duty and also Mortgage Interest Relief.

First we’ll look at Stamp Duty. Reform and simplification was long overdue! What a pity a more generous reduction was not on the cards! Stamp duty is just too easy to get away with I suppose. After all, it is a tax that is ensured to be collected by solicitors who would face the gallows should they fail to collect it on behalf of the government. The U.K. rates are so much better it makes our system look draconian. We copy their laws and rules on almost everything, why can’t we do it on the stamp rates!

Rant complete.

Stamp duty is now on a simplified three tier system.

1. Exempt: if the property is valued at less than €125,000. Maybe we should really call it a two tier system, a quick search of the property sites has shown that there are virtually no inhabitable buildings available in the …

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Budget 2008, Stamp duty reform & Mortgage Interest relief:

The budget was released yesterday and the two things of particular note to any of us with an interest in property are changes in Stamp Duty and also Mortgage Interest Relief.

First we’ll look at Stamp Duty. Reform and simplification was long overdue! What a pity a more generous reduction was not on the cards! Stamp duty is just too easy to get away with I suppose. After all, it is a tax that is ensured to be collected by solicitors who would face the gallows should they fail to collect it on behalf of the government. The U.K. rates are so much better it makes our system look draconian. We copy their laws and rules on almost everything, why can’t we do it on the stamp rates!

Rant complete.

Stamp duty is now on a simplified three tier system.

1. Exempt: if the property is valued at less than €125,000. Maybe we should really call it a two tier system, a quick search of the property sites has shown that there are virtually no inhabitable buildings available in the …

Read More

Whats the fuss about the U.S. Dollar?

The federal reserve is expected to cut rates next week in an effort to alleviate a credit market in crisis. In the meantime there are other developments which may be coming to the rescue, last week Abu Dhabi Investment Authority bought a $7.5 billion stake in Citigroup helping Americas largest bank, who incidentally have massive exposure to those nasty sub-prime loans that are at the root of the present credit crunch. Perhaps Abu Dhabi Investment Authority see an opportunity to pick up assets at a bargain from amongst the wreakage? The other surprise is that China Investment Corporation have expressed a desire to invest in stocks ‘rocked by sub-prime defaults’. The chairman of China Investment Corporation said that the $200 billion fund he directs will be a ‘stabilizing force in the international capital markets’. Perhaps they are seeking credibility in the business world.

Why would it be any other way? If the U.S.A. goes down it will seriously hurt China. Why? For a start the fact that for the near future most of the worlds commodities are in $USD it …

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Ulster Bank, cutting out brokers, and perhaps Consumers too?

I guess the best thing to do is quickly outline the way things have worked since the inception of the broker industry in Ireland.

Brokers start their own companies and place business with larger companies, there are several types of brokers, some are tied (this means they only place business with one company) and independent – which is what Irish Mortgage Brokers are – and we have a panel of 15 banks and 5 insurance companies.

We have traditionally been paid 1% of the loans we send a bank as a ‘commission’ or income, so the client normally doesn’t have to pay a broker fee because the costs are covered by the commission. Brokers are paid because broker business (which counts for almost 60% of all mortgages done in this country) is a clean and profitable source of business for banks, they don’t have to pay for the brokers staff, their light, heat, holiday time etc. They do however have to pay for all of these things when a loan is done at branch level (e.g.: the loan is done …

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Credit Freeze and the effects on the ECB

The credit markets in the U.S.A., Asia, and Europe are in the midst of a freeze at the moment. Banks are not willing to lend to each other hence the big hike in the Euribor (European inter bank ordinary rate: this is the rate that banks lend to each other at) rates and in the U.K. the Libor (London inter bank ordinary rate) rates, they are trading much higher than the central bank rates and this indicates that there is (to a degree) a general mistrust between banks, mainly because they don’t know the exposure to sub-prime exposure the other may have.

The response thus far has been a Fed rate cut, this came a little late, and the indication is that Ben Bernanke will cut the rates again within the next week. Earlier in the year (March 28th) Bernanke claimed that ‘the impact on the broader economy & financial markets of the problems in the sub-prime market are likely to be contained’. Later in June he again re-iterated that there was not a strong chance of a spill-over into …

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Pensions Panic is Largely Unfounded

Recent turbulence in the stock markets has panicked many investors contributing to pensions funds. The stock market falls of the past three weeks have left countless investors worrying about the state of their funds and wondering if their future returns will be affected. Some are even switching funds from equities to cash. A rash move by many, and one that may have been made too soon.

With such high growth levels being experienced in the three years previous, a market correction was somewhat inevitable. It was also necessary in order to weed out the less profitable investment funds from the more established investors. For the last couple of years, Irish pension funds had grown at a rate of over 16% per annum. Growth at this rate was not sustainable, yet despite the falls of recent weeks, most pension funds are still looking healthy.

Reasons behind the buoyancy of the pensions schemes include strong equities markets in 2006 leading into 2007 and continuous increases in interest rates. Higher interest rates lead to better returns from investments such as bonds, which pensions …

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Trichet Remains Cautious about Increasing Interest Rates

The European Central Bank has given rise to further speculation that it will decide against increasing the rate of interest next week. The bank has previously maintained a hard line on inflation, which has seen it increase interest rates eight times since December 2005.

There are a number of reasons why the European Central Bank would consider leaving interest rates at their current level. As yet, the full extent of the credit crunch is unknown. The increased complexity of financial markets during the past decade has meant that in the event of a crisis affecting global financial markets, it becomes difficult to identify all of the victims. It will be many months before the true degree of casualties is realised.

The ECB will be wary of introducing another interest rate increase so soon for a number of reasons. As a result of the current credit squeeze, there may be a significant decrease in the demand for money which would only be further aggravated by an increased interest rate. So far, this mostly concerns the financial sector. It is …

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CFD Anonymity Loophole to be Closed

Investors who use CFDs (contracts for difference) will soon be required to disclose details of their shareholdings, as regulations governing CFDs are to be amended. There currently exists a loophole whereby investors can hold stakes in companies anonymously. This is considered to be highly anti-competitive and allows many individuals to build up large stakes in companies before deciding to declare them publicly.

CFDs have become extremely popular with Irish investors in recent years and they are also commonly used by hedge funds who surreptitiously gain control of shares in companies. Some say that contracts for difference account for as much as 0.25 – 0.50 of daily trading on the stock exchange here. Much of the reason for this is the convenience they offer to investors, as they provide a means of borrowing and purchasing through the one financial instrument. Many institutions are nervous about lending to finance investment in volatile markets, so these instruments offer a welcome alternative to investors.

CFDs require investors to personally lay down a deposit, also known as a margin. Borrowing through the CFD is …

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Slowdown in House Price Growth Could Delay ECB Interest Rate Hike

House price growth in Eurozone countries has been steadily decreasing for a number of months. The current slowdown in Eurozone housing markets could jeopardize the region’s economies. Many Eurozone countries have experienced exceptionally high growth levels over the past number of years and may find it difficult to adjust their economies accordingly.

Countries such as Ireland witnessed unprecedented growth in the housing and construction sectors in the years leading up to 2006 when they peaked, and have steadily slowed since then. Much of this growth has been attributed to low Eurozone interest rates, which bottomed out at around 2%. The end of 2005 saw the beginning of interest rate increases, a trend which continued throughout 2006 and 2007 to date, and saw interest rates doubling. This put increased pressure on borrowers and contributed to the marked slowdown in the housing market. Ireland is particularly susceptible to interest rate hikes, given the large proportion of variable rate mortgages that exist here.

It is thought that the expected average rate of increase for house prices in the Eurozone will stand at …

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Financial Regulator Introduces New Stress-Testing Regulations

The Financial Regulator is set to introduce new regulations governing the stress-testing of mortgages in the near future. The changes, which are expected to be introduced next month will amend the current practice of stress testing mortgages to determine repayment capacity at a rate 2% above the ECB rate. The proposed changes will mean that future mortgage applications will be tested at a rate of 2.75% above that of the ECB.

Up to this point, lenders have stress-tested mortgages to establish whether borrowers could afford payments on loans at an increased rate of 2% above the ECB rate. Many lenders in the Irish market don’t stress-test applications that seek 5 year fixed rates. The new regulations will require that lenders stress-test all applications to make certain that borrowers can make repayments at the new higher rate of ECB +2.75%. The policy of some banks not to stress-test 5 year fixed rate mortgage borrowers, meant that many qualified to borrow larger sums than a standard variable rate mortgage would allow. These new directives will put an end to this practice.

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