Euribor yield curve changes April 2009

Below are two charts of the Euribor yield curve (many thanks to Bank of Scotland Treasury for their excellent daily reports!).

Here we can see that there is not much of an inflationary expectation at year two or three, it is virtually a dip at the 3year mark, then there is some uncertainty, in year four it goes up by about 75 basis points, then we are back into a general steady upward trend.

Only a few days later and the three year price has shot up by 50 basis points, we would read this as being an indication that the markets are forward pricing in some expectation of inflation at the two or three year mark, if the rise filters through to the left hand side then it will be showing a stronger and stronger likelihood of this happening. Appropriately banks have just raised their fixed rates meaning that the window in which people on variables can cash in low are …

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A tale of two developers.

The builders, developers, and even architects I know are all having a really tough time at the moment, with some they are talking to the banks about how much they are willing to lose on the deals they financed because the numbers no longer add up with the market the way it is now. The adjustment is painful, but at the same time it means there are going to be a few who buck the trend, who are able to not only weather the storm but come out of it stronger.

The two types will have to have one or more of the following traits

1. They have no stock for sale at the moment, if you are going to market today it means you likely financed the deal on figures which were calculated at 05/06 prices, you paid wages and costs that were high during the remaining days of the boom and now you have property where the cost outweighs the market clearing price.

2. Any land bank was bought a long …

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To fix or not to fix, even if it ain’t broken

Paul O’Connor from MyHat.ie asked me to do a post about fixed rates, like us, they get lots of questions on mortgages, property etc.

Fixed rates at the moment (there are new ones due for publishing soon on the back of the most recent rate cut) are (listing only the non-LTV restricted ones) as follows:

2yr fixed: 2.8% 3yr fixed: 3.1% 5yr fixed: 3.6% 10yr fixed: 4.25%

For those on variable rates the general rate suite is around the 3.1% mark, with several lenders telling us outright that they won’t be passing on rate cuts then moving to a fixed rate over up to the 5 year mark is of little consequence, in fact, it would likely be a smart thing to do because rate changes on the down are not going to be passed on (see the article on rate compression we did here before), but on …

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To fix or not to fix, even if it ain't broken

Paul O’Connor from MyHat.ie asked me to do a post about fixed rates, like us, they get lots of questions on mortgages, property etc.

Fixed rates at the moment (there are new ones due for publishing soon on the back of the most recent rate cut) are (listing only the non-LTV restricted ones) as follows:

2yr fixed: 2.8% 3yr fixed: 3.1% 5yr fixed: 3.6% 10yr fixed: 4.25%

For those on variable rates the general rate suite is around the 3.1% mark, with several lenders telling us outright that they won’t be passing on rate cuts then moving to a fixed rate over up to the 5 year mark is of little consequence, in fact, it would likely be a smart thing to do because rate changes on the down are not going to be passed on (see the article on rate compression we did here before), but on …

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The pincer of fixed rates while in negative equity

A recent article in the Independent stated that ‘fixed rate borrowers are taking all the pain’. The base rate has fallen from 4.25% to 1.25% with a further rate reduction expectation taking the EU to a base of 1%. What this means is that people who felt the drop off in base rates (tracker mortgage holders & most variable rate holders) are now better off to the tune of about €425 per month.

However, for those on fixed rates the story is the reverse of this, they have not felt any reduction in the amounts they are spending monthly while at the same time many have had to live on less due to wage cuts, levies, and job loss. The fees for ‘breaking’ a fixed rate are usually from 3 to 6 months of payments.

So what can you do? If you have the savings to pay for the move you can go that route, but if you have been …

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Rent or Buy the 5 year outlook

Today we are going to look at a comparison of renting vs buying with a five year outlook given the current interest rates, the yield outlook and lastly the cost of renting.

The following figures factor in real life examples taken from existing lending rates/rental prices and the forward estimation on rates is taken from presumptions in the current yield curve (chart is below). The terms applied in each example are 30 years, and the purchase is assumed to be a couple buying together, we can examine the impact for a single person in a separate post.

If you were to take a price of €313,000 for a two bed property (current average taken as a mean of prices in todays daft report – this figure is the Dublin average price across all geographic areas, the figures can be determined for any county the same way) and do the following.

1. Compare the total cost of ownership (we are not factoring in house insurance, bin …

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MicroVentures, how a microfinance approach to investment in Ireland could create jobs

I have covered the area of microfinance before, and in nations where it works the multiplier effect of the credit is said to be quite astounding, today however, we will take that concept and apply it to Venture Capital minus the multi-million euro entry fee. This post will cover MicroVenture’s.

MicroVentures, have in the past related to the semiconductor business, however, this version instead relates to the idea of bringing together groups of small investors and putting them in touch with small groups of entrepreneurs, and then allowing voluntary mentor participation. Kind of like a real life but smaller version of the dragons den. The working mechanism is below.

A microventure convention would likely need to operate as follows. Every person who wants to attend does so by purchasing a ‘share unit’ – we’ll say this is a standard price of €1,000. It is held in escrow by a solicitor or bank, and allows the attendee to go …

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New build a loser?

Banks are now reducing the LTV they will offer for new build properties but not in the second hand market and today we will look at why they might do this.

To begin with there is the rationalising of price in new build developments, that doesn’t mean the prices won’t drop further, it means that many builders are pricing to the market and not to what they want them to be worth. This however, is a tricky proposition for banks who may be lending on said properties.

Imagine this, ‘Phase 1 selling from €365,000’, now just over a year later ‘Phase 2 selling from €250,000’ and these are basically identical or comparable properties. Values are (in essence) set by what a person is willing to pay for an asset, and in this example the properties are all now worth €250,000 irrespective of what price they sold at. This means the banks security has just dropped by a similar amount.

The market is witnessing the most spectacular falls in the new build area, thus banks …

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Regulatory distortion of the market, intervention required.

The Financial Regulator has been under increased scrutiny and for that reason it is probably a good idea if they take steps to ensure a fair and transparent marketplace, because the current public sentiment is that they have not performed their job as well as they should have. From the point of view of the intermediary channel, there are marketplace distortions that are actually harming customers and we have explained this via broker representative bodies but to no avail.

The issue currently causing problems is that of dual pricing/dual offerings. This occurs where a bank has one price if you go direct, and another if you go through a broker, or where they offer incentives via one channel that cannot be matched in another. The danger is that independence of advice is under threat when there are ‘teasers’ involved through any channel that diminishes the potential for multi-institution advice.

If banks were willing to compete across all distribution channels equally it would be one thing, but they are not, in fact, …

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Rent to Buy, why?

I had dinner in early 2008 with a man who was a retired builder, he told me about the way he used to do business back in the 70’s, and he told me ‘you wait and watch! It’ll be happening that way again!’, he was right, although at the time I didn’t realise that.

He said that back in the 70’s when people came to see his houses they’d say ‘how much is it?’, and he might say ‘£12,000’ to which they invariably said ‘we can’t afford that!’, and his approach was this – ‘what can you afford?’. He would then negotiate a deal with the buyer based on renting out the property with a view to buying or letting them have the property and paying him directly without having to go down the route of standard mortgages etc. and it worked, he was successful through the 70’s and 80’s and he retired in the mid-90’s before (as he said) ‘the real fun began’.

The point about this is that being able to work …

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