Is a ten year fixed rate a good idea?

Recently KBC introduced a 10 year fixed rate, they are not the first back to have done this, in the past other banks had them but their prices were high, the difference today is that you can get a 10 year fixed rate mortgage for below 3% and that means it’s worth considering.

First of all, why would you want to fix for so long? Obviously the longevity of a guaranteed price in a world where rates are expected to rise over time makes it attractive. This has to be balanced against the likelihood of competitive forces driving down Irish mortgage rates. Currently there is upside down pricing where fixed rates are cheaper than variable rates, how long this will last is anybody’s guess.

What we can do is look at the yield curve in order to get an idea of when rates might go up. Looking at that curve today (the quote date is from the 22nd which is last Friday) we see that yields are still negative a full six years into the future.  What …

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Brendan Burgess makes a ‘Tax Payers proposal for the budget’

Brendan Burgess of AskAboutMoney.com wrote an interesting ‘tax payer’ oriented budget submission, you can make up your own mind on it, details are below.

Mr Paschal Donohue Minister for Finance By email minister@finance.gov.ie 2018 Pre-budget submission on behalf of the Irish taxpayer

11th September 2017

Dear Mr Donohue

All the pre-Budget submissions you receive will be calling for increased expenditure. But there is no one representing the unfortunate taxpayer who will foot the bill for this expenditure. There is no one arguing the very obvious point that we are spending well beyond our means. So I have taken it upon myself to make a submission on behalf of the Irish taxpayer. Key points • With a national debt of €200 billion, there is a clear and present danger to the economy – so tax cuts in 2018 or 2019 would be irresponsible. • You are making the same mistakes which Fianna Fáil were vilified for making during the Celtic Tiger budgets – increasing permanent spending based on temporarily high tax receipts. • Social welfare payments are far higher than in …

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Non-credit fuelled booms

There has been an ongoing narrative that the last housing boom (and many others) was only possible due to excessive credit. We have argued for a long time that this is a mistaken interpretation. While credit can make a bad situation worse, just like adding fuel to a flame, it is not the genesis of the problem.

We were pleased to see this view articulated by the Central Bank Governor Philip Lane recently. He stated that “cash buyers of property are limiting the ability of the Central Bank to control house prices through mortgage lending rules” he “singled out cash buyers as one of the key drivers of inflation in the Irish property market. Cash buyers used to account for about 25 per cent of house purchases in Ireland, but since the crash and ensuing credit crunch this figure has risen to 60 per cent“.

This is a point we have been making for years, firstly was that first time buyers are not, and have not been the problem. That was part of why we were specifically …

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TodayFM ‘The Last Word’ features Irish Mortgage Brokers

We were asked to take part in a segment called ‘Home Truths’ on TodayFM during the Last Word with Matt Cooper. The segment featured Karl Deeter and David Silke from the housing agency.

We were discussing the rental market and certain issues that go along with it, our main point is that there shouldn’t be a housing crisis, but that we managed to manufacture one.

The audio clip has the full segment on it.

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Discussing pay-gaps in the Sunday Independent

One of the most infuriating things a person could hear is that they are not being paid on par with another person who has the same qualifications and who does the same job. This is why we have to be so careful about declaring the accuracy of pay-gaps when examining statistics.

Karl Deeter laid out the statistical issues in this are in the Sunday Independent this week and showed that for a myriad of reasons women can appear to be paid less than men but that in part it’s due to how we collect the statistics rather than due to any undercutting of earnings by women based on their gender.

The extract it starts with is below, the full article is in the link at the end of the extract.

Logically, if it was cheaper to hire women than men you would never hire men as the savings would be too great, unless a business values misogyny over capital. I say that not as an objective analyst, but as a business owner who values capital. Paying a person less for …

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Property price are set to rise and rise… (then crash)

We have been clear about our views on property cycles for many years. That is why we said when many were saying the crash would run and run, that we took a contrarian view and said the market would rise and rise quickly, then experience a mid-cycle slow down and return to a rapid increase in prices.

Our ‘mid-cycle’ was called in 2015 as the Macro-Prudential rules kicked in that they wouldn’t calm the market. We said any effect would be temporary at best and that price increases would return and lead us up and up into a crash in the mid 2020’s. This prediction has been one we made long before almost anybody else in the market and we see no reason to believe (for now) that it won’t happen.

The frustration now is about what to do in light of this, for people who want to rent you need to nail down rental contracts – even though more than half the country has rent control because it is going (meant to) end in 2019. For those looking to …

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What about small radical housing plans?

In speaking with several people within industry I have come across the same idea a few time, to the extent that the thought has occupied my mind and turned into this article.

The idea is that experimentation is part of progress, but that we rarely experiment with housing, in particular we rarely experiment with the ‘how’ of  it. Historically it has taken calamitous events to make changes, for instance, the timber and plaster construction of Tudor homes was replaced by the brick and stone of Georgian construction only after large fires and events like the Great Gunpowder Disaster of 1597 in Dublin.

So what if we did the following: take a single street in Dublin, Cork and Galway, ideally one which is fairly ruined (there are many) and we said that for this one street that people could do whatever they wanted in terms of building anything they felt was appropriate or what they wanted to do.

That might mean you have a four storey house next to some shipping container apartments or some other weird mix, but we could …

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Mortgage approvals

Analysing figures released by the Banking and Payments Federation, the article sends a somewhat contradictory message. On the one hand, first time buyer mortgage approval volumes increased 19% this April compared to April of 2016. However, this volume also represents a 8.4% drop from the number of mortgages approved last month in March.

The decrease in the number of first time buyer mortgages this month is not indicative of the generally increasing annual trend, and may be due to the lack of buyer discounts offered in the month of April, when there isn’t many major holidays or events. April is generally the worst time of the year to finance a house (Business Insider).

On a larger scale, the trend in approval volumes for all mortgages follows that of first time buyer mortgages, but to a less exaggerated extent. The number in April represents an increase of 11.7% compared to April of 2016, and a decrease of 11.6% compared to March of this year.

The greater increase in first time buyer mortgages as compared to all mortgages could indicate that more …

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The great Irish deleveraging

This is like the Great Irish Bake-off but all about delevaging, Central Bank economists Reamonn Lydon and Tara McIndoe-Calder put together an excellent paper (05/RT/2017)on the topic, the full technical paper is here.

Our condensed and plain English version is below:

ABSTRACT The authors drew on the 2013 household Finance and Consumption Survey (HFCS) to stimulate household balance sheets form 2005 to 2014 for the purposes of investigating household leveraging and deleveraging during this period. The paper shows that deleveraging has proceeded significantly faster with older households as opposed to younger ones. With younger borrowers, tracker mortgages have eased the debt repayment burden in the presence of large income shocks. All in all, income shocks are the main factor contributing to mortgage repayment problems.

INTRODUCTION From the early 2000s through to the peak of the property boom in 2007, rapid increases in leverage ratios and repayment burdens far outstripped growth in disposable income, leaving households exceptionally vulnerable to the economic shock of 2008. One result of the crisis was the large increase in non-preforming mortgage loans. …

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