Bigger deposits equal less savings.

An often overlooked aspect of finance is that mortgages are actually a brand of savings, as perverse as that may sound, you have to consider what happens when you pay off a loan over time. The ‘interest’ is the part that pays for the right to use money from the future (which is what credit is, it’s moving money through time) in the here and now, the other part is a ‘capital’ repayment.

When you repay capital you are making a balance sheet gain (or for those into more up to date accounting speak, you make an improvement on your ‘statement of financial position’), even if prices stay static, over time you will eventually owe zero and that means you have a large asset which is the end result of this ‘savings’, albeit not in actual cash.

When you have a housing scarcity and rents are rising, this acts like a ‘tax’ on income, rent and mortgages are paid in after tax income, so the urge to buy when buying is cheaper and obtain a fixed outgoing (as you can …

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Economic Factors affecting Irish Property Market (part I)

Background: The Irish residential property market has gone from a period of spectacular growth, to a dramatic crash and lately to recovery in the past ten and half years (2005 – 2015) the period I will concentrate on in this article.

The economic factors which influenced these major upheavals are many and varied such as Interest Rates, Unemployment, Population Growth, Demographics, Wage Inflation, Exchange Rates vs Sterling & the US Dollar, Budget Measures, Central Bank borrowing limits, Credit Availability, Rents, Sentiment & Stock Market performance.

This is not an exhaustive list but it does show the range of factors that can influence property price movements with some having a much more dramatic effect than others. Here I will confine my analysis to the influence four key factors played on residential property prices in Ireland during the period discussed.

These are Unemployment, Migration, Exchange Rates & Sentiment. Firstly I will look at the property prices themselves and how they have behaved during the period.

Property Prices:

In the early part of the period under review (2005 to 2007) property prices increased …

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Irish rents vs yields for one bed apartments

Looking at the yields versus the monthly rents for one bedroom apartments in the all the Dublin regions for quarter four of 2015, it can be seen that the rents ranged from €888 for North County Dublin to €1,480 for Dublin 4, while yields ranged from 5.7% for Dublin 6 up to 10.5% for Dublin 10.

Dublin County was divided into 25 areas corresponding with the postal districts plus North, South & West Dublin and we were attempting to see what relationship exists if any between the amount of monthly rent paid and the yield generated for the owner.

The yield is the gross figure and can be directly related back to the price of the property by calculating the annual rent and multiplying this by the multiplier which is calculated by dividing 100 by the yield e.g. take the one bedroom apartment in Dublin 1 with a monthly rental of €1,141 multiply by 12 to give €13,692.

It has a yield of 8.7% which gives a multiplier of 100/8.7 = 11.49. This will then give a property price of …

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Newstalk: Pat Kenny talks to Irish Mortgage Brokers

Pat Kenny interviewed Karl Deeter about the Central Bank lending rules and why, in his view, they could have been done slightly differently and better. It’s an interesting insight into the difference between control-lead regulation and results-oriented regulation.

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Irish Times article featuring Irish Mortgage Brokers

Conor Pope from the Irish Times had an interesting article on lending restrictions and did a good piece on it in today’s paper. In the piece he quoted Karl Deeter from Irish Mortgage Brokers on his views about the effect of the Central Bank rules on the property market.

“Karl Deeter, a mortgage broker and keen observer of the property market, has written an extensive report on Dublin’s boom-and-bust cycles spanning 300 years. He is not one of the Central Bank’s cheerleaders, and he is unconvinced that the 2015 scheme deserves much credit.

“I don’t think the new rules have had any real impact on the house market despite how it might be characterised,” he says.

Deeter points to an International Monetary Fund study of six countries that introduced lending restrictions. The report indicated that the rules made little difference, he says.

“In the credit market the rules have caused a fair bit of chaos. But I think prices were going to slow down anyway. We are in the middle of a property cycle, and cycles …

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Independent Newspaper mentions Irish Mortgage Brokers

In an article today about mortgages by John Cradden of the Irish Independent we were quoted extensively regarding our thoughts on loans, extracts are below:

Last month saw the official launch of a new mortgage lender here in the form of Australian firm Pepper, who will be lending to the self-employed and those who got into arrears during the downturn but are now back on track.

“Up to now, if you had credit issues you were virtually unbankable, that is set to change,” said Karl Deeter of Irish Mortgage Brokers. “Equally, as banks add bells and whistles to their product suite, you’ll see some will be about flexibility rather than price and that’s a sign of competition in product differentiation coming through.”

He adds that rates will improve with the new competition. “This was what happened in the last credit cycle and will happen again so time will take care of that, but Ireland also has unusually high risk associated with our loans so that has to be factored in.”

The cashback offers are another popular incentive, with …

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One Big Switch findings on mortgage holders

There was an interesting infographic out today from One Big Switch showing what people have done in order to make their mortgage repayments.

It ranged from working extra hours, to taking fewer holidays and socializing less. What is interesting about this, is that nobody tends to look at the wider economy effects of high mortgage rates, and the Central Bank while saying they want to examine them, cannot and will not do anything about it.

Higher rates act like an informal ‘tax’, and as some banks are foreign owned it means taking income out of the Irish economy and funnelling it elsewhere, this affects our balance of trade and was a reason we always questioned the Patrick Honohan diktat of not having an issue if all banks were foreign owned.

This informal tax reduces expenditure in the productive economy and goes towards rationalizing zombie balance sheets, so lower rates should be a priority for everybody, but the way to get there isn’t force, it’s competition and for that reason we are hopeful that the switching campaign will be a successful …

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Pat Kenny show, the ‘Friday Panel’

We were asked to take part in Pat Kenny’s ‘Friday Panel’ which was hosted by Shane Coleman. The discussion was on many property matters and went on to cover politics and crime. The panel members were Michael O’Regan the political correspondent of the Irish Times, Martina Devlin who is a well known journalist and author, and lastly was our own Karl Deeter.

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