The problem of over-saving

Just when we thought we heard it all in terms of the strange scenarios you encounter in credit, up pop’s something new, the problem of ‘over-saving’. For most of us the problem is ‘saving anything at all’, but in some cases the potential borrower goes far beyond what is good for them.

Here is how it manifests.

So far we have seen this mainly in people who are at average wage and below, and how it occurs is that in an effort to save as much as possible that they then make their bank statements look bad.

I got a call from one of our brokers to look at a case they had, the bank statements didn’t look good, they had referral fee’s and were in overdraft.

A referral fee is where you might have no overdraft and you go overdrawn, you might have €10 left and go to withdraw €200. In this case you’ll be minus €190 and see a thing called a ‘referral fee’ which is typically €4.44 it means that you broke the terms of the account …

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Talking Money on New Years Resolutions, 5th January 2015

This was our first time to do ‘Talking Money’ on RTE’s Drivetime Show, we looked at financial resolutions, how to make them simple, and most importantly, how to set them up so you actually implement them, the key is to take small steps and form habits rather than trying to do it all at once. Listen in to the clip to find out more!

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Rule 72, unlike rule 34 in every way

You’ll have to forgive the meme reference of ‘Rule 34’, because ‘Rule 72’ is a financial mathematics tool that helps you decide how long it will take for a sum to double at a certain rate of return.

How does it work? Easy, you just take the number 72 and divide it by the interest rate, so if you had a sum of €10,000 and were getting a 4% return, how long would it take for you to double your money?

Workings: 72/4 = 18 so it should take 18 years to turn €10,000 into €20,000. We can test this using financial maths by inserting €10,000 into the formula of 10,000*(1+r)^x which will take our principal and gross it up by the compounded series at 4%.

€10,000 x (1+0.04)^18 = 10,000 x 2.02581 = €20,258

So while it isn’t as precise as the known formula calculation, it’s very close given that we are discussing a term of 18 years. You can use the rule of 72 for any interest rate and it will get you a fairly close answer, although …

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RTE Morning Ireland: ask Irish Mortgage Brokers about homelessness

We were asked by Morning Ireland to discuss homelessness and to iterate our view that the removal of bedsits which were a source of housing for people with low to no incomes was a mistake. Focus Ireland shared the view and made important points about their work being more than just putting roofs over peoples heads.

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RTE Drivetime: Talking Money on pensions (week 2)

In the second instalment on pensions we looked at the situation people may find themselves in if they have waited until their 40’s or 50’s to start saving towards retirement. There are some scary valid concerns but also some good news when it comes to retirement provision started late.

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Central Bank Mortgage Cap Calculator: did you get shafted?

We have designed a simple calculator that lets you put in your property price, what rents you are currently paying, how you think prices will change and how many years it would take you to save a 20% deposit if you only have 10% now.

Just download the excel file, fill in the bright yellow boxes on the first sheet, and then scroll down to the green area to find out if you win or got shafted. (download here)

You can play around with different scenarios, but suffice to say that a regular couple who have €25,000 saved up and are looking to buy a property for €250,000 today will be worse off if rents and property prices went up by 2% a year (and it took them 4 years to save the additional deposit required) to the tune of €15,500.

We don’t believe it is in the remit of the Central Bank to damage the balance sheets of financially healthy individuals, but you can test your own hypothesis and see how it …

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RTE Drivetime: Mary Wilson speaks to Irish Mortgage Brokers about Budget 2015

We spoke with Mary Wilson on Drivetime about the Budget 2015 announcements and agree that it wasn’t a ‘budget for builders’ because it was more like a budget for land bankers.

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Budget night 2015: Vincent Browne’s ‘Tonight’ show on TV3

On the night of Budget 2015 we were asked to participate in a large panel discussion on Vincent Browne’s ‘Tonight’ show. We tried to make the point that the budget was not one that should have people too disappointed, it was the first time in years that anything came back to tax payers rather than taking more (apart from the better paid who now have a super USC rate).

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Prudence puts you deeper in debt… Nice work by the Central Bank

The news that higher loan to values will have to be limited is being mistakenly applauded by many financial commentators, almost none of whom work in credit. Towards the end of the post we demonstrate that you can actually be worse off by being forced to wait and put down a larger deposit than if you acted normally and bought today with a 10% deposit.

That’s why taking a look at the numbers beneath and how it will affect mortgages is important. First time buyers are typically the younger end of the house owning spectrum, they largely chose to stay out of the market during the financial crisis, a good choice, very rational.

That is why the people renting rose so much between 2006 and 2011. A total of 474,788 households were in rented accommodation in 2011, a considerable rise of 47 per cent from 323,007 in 2006.

It created a build up of non-owners who want in, but who are not the main driver of property price increases …

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