Get ahead of the curve on fixed rates… Oops! Too late!

We have been touting fixed rates for quite some time on the basis that people needed to fix at the time rates were heading for historic lows, not after the fact, as well as that, the indications from the ECB that they would not go below 1% and instead would seek alternative options (such as QE) meant that once we got close to the 1% the forward market would price that in, but when we actually reached the 1% base that equally the forward market would price in rising rates.

That is exactly what has happened, it wasn’t front page news when we said it, although the Sunday Times did do a big story in their business section in mid-February, but now that banks are starting to raise their interest rates it certainly is!

It gets back to planning, without exception every client we had that deliberately went for a fixed rate in the interim is in a good position, some who have opted for variable rates are doing well …

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Current account interest rates are set to drop

Banks have a pool of money called ‘zero rated funds’, this is the money that they hold for which they are paying no interest. Lots of current accounts fall under this category, and banks can figure out with time, the block that is there on a regular basis when you remove the marginal volatility in the funds held at any time.

Imagine you own a money shop and you buy in money and sell it too, in the till you know that no matter what  happens you always seem to have at least €60 in the till, that would be the equivalent of your zero rated funds (hope that makes sense!).

When banks lend they take these zero rated funds and mix them with money bought on the market to come up with ‘blended rates’. So while some money is costing 0% other money might cost 1.269% (that’s today’s 3 month Euribor ), you then get an average of these and depending on what the ‘blend’ or ‘mix’ is your …

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Irish economic policy for the crisis: What next? (first session)

On Wednesday there was a conference in Trinity College Dublin called ‘Irish economic policy for the crisis: What next?’. This post is video footage taken at the conference (thanks again to Philip Lane and Patrick Honohan for allowing me to film it).

There are some really fascinating ideas in the talks and for those of you who couldn’t make it on the day it is really worthwhile watching.

The first speaker of the day was John Fitzgerald of the ESRI who gave a talk about competitiveness. The other parts are here ( part 2, part 3, part 4, part 5 )

Karl Whelan of TCD followed with a piece on Potential Output. Karl’s talk raised some great points about the structural deficit but pointed out (towards the end) that the actual deficit is the thing to focus on. …

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Survey shows Brokers are the most trusted advisers

Research carried out by Nottingham Business School has shown that Brokers are the most trustworthy group of financial advisers.

The post below is taken from Mortgage Strategy which published the findings:

Brokers and advisers have come out on top in a consumer survey on trust within the financial services industry. Nottingham University Business school has put together the latest Trust Index on behalf of the Financial Services Research Forum which measures how trusting consumers are of the industry.

It found that brokers and advisers received the highest rating on trust and trustworthiness at 81.67.

Brokers and advisers have consistently been ranked the most trusted among financial services firms though have experienced a marginal decline this year. Findings in the latest study, which has been running since 2005, rank independent brokers higher than tied ones.

Banks, life insurance companies and credit card companies received the lowest ratings, at 73.96, 72.69 and 71.55 respectively.Overall the sector earned a trust rating of 75.02, and was deemed more trustworthy than institutions such as the National …

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Why aren't mortgages MORE expensive?

In looking at any product or service you will often hear people mention ‘supply and demand’, it is one of the foundations of Microeconomics.

Generally if supply increases prices drop, if it decreases prices rise. By how much is a question of how elastic the demand is versus supply.

We know from our day to day experience that there is still a high level of demand for mortgage finance, charting our figures back to 2005 has shown us that if we take out ‘noise’ of m/o/m figures that demand is still at relatively high levels.

However, we also know, from our daily interactions with banks that criteria is getting harder, conditions more restrictive, underwriting is more forensic, the supply of mortgages is decreasing rapidly.

Using a simple chart you would get something along the lines the one below, the blue supply and demand lines show  the situation at a certain point in time, we’ll say that is a year ago, the green line of supply shows the current situation – it has moved to the left because of the decrease.

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Why aren’t mortgages MORE expensive?

In looking at any product or service you will often hear people mention ‘supply and demand’, it is one of the foundations of Microeconomics.

Generally if supply increases prices drop, if it decreases prices rise. By how much is a question of how elastic the demand is versus supply.

We know from our day to day experience that there is still a high level of demand for mortgage finance, charting our figures back to 2005 has shown us that if we take out ‘noise’ of m/o/m figures that demand is still at relatively high levels.

However, we also know, from our daily interactions with banks that criteria is getting harder, conditions more restrictive, underwriting is more forensic, the supply of mortgages is decreasing rapidly.

Using a simple chart you would get something along the lines the one below, the blue supply and demand lines show  the situation at a certain point in time, we’ll say that is a year ago, the green line of supply shows the current situation – it has moved to the left because of the decrease.

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Mortgage Interest Relief (TRS) changes for May 2009

The changes mentioned in the recent budget will be kicking in soon and it will mean that people are likely to be affected in their mortgage interest relief for the month of May. TRS (tax relief at source) is going to be temporarily suspended for most of qualifying borrowers so that revenue can work through the claimants and determine who should be obtaining the benefit and at what level.

The rules regarding TRS can be found on the Revenue Commissioners website, some of the national commentary on it appeared in the Times (here).

According to banking sources we spoke to the borrowers who will be affected are any who changed their mortgage in the first seven years, so if you switched to get a better deal, topped up or made any changes you will probably be affected in the short term. As well as that, any first time buyers who moved during this time will be affected, if you bought a house (for instance) in 2004 then moved …

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I wish I was a banker

The nationalisation of banks has taken up many of the editorial pages of late, everybody has their own opinion and in particular there is some serious divide in the academic realm. However, the reality is that if banks are nationalised then the people working in them should by right, become public servants, and if I was a union organiser in any of the large banks I would be ensuring that everybody is organised so that the necessary steps are taken, when the state becomes the new boss, that state worker benefits are part of the deal.

Why not? Why should the state be able to offer teachers a certain contractual benefit but not other people who will be in essence, in the state employ? It’s not semi-state we are talking about, rather a nationalised bank is fully state owned. There is only one shareholder and that is the government.

There are plenty of precedents for bank employees not getting state job style benefits but there is something that nobody has mentioned yet, …

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The banking 'Whitewash'

Meredith Whitney talks about the ‘banking whitewash’, saying that the recent gains in many banks (they have been beating expectations by and large in Q1) are not all down to ‘recovery’ but instead due to other factors.

She says that the factors that lead to these gains are not replicable and that the underlying assets are still deteriorating. This makes for some interesting observation because the great deleveraging of both companies and individuals is still in full swing so there is little reason to doubt the observations Meredith Whitney makes, rather it will be how these factors play into the real economy that concern me.

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The banking ‘Whitewash’

Meredith Whitney talks about the ‘banking whitewash’, saying that the recent gains in many banks (they have been beating expectations by and large in Q1) are not all down to ‘recovery’ but instead due to other factors.

She says that the factors that lead to these gains are not replicable and that the underlying assets are still deteriorating. This makes for some interesting observation because the great deleveraging of both companies and individuals is still in full swing so there is little reason to doubt the observations Meredith Whitney makes, rather it will be how these factors play into the real economy that concern me.

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