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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A Repossession Guide for Irish Homeowners

We have written ‘A Repossession Guide for Irish Homeowners’ which you can download by clicking on the picture to the left.

The guide is there give people an understanding of the arrears & repossession process, and what you can do to help yourself.

We hope you find this useful, if there are other things that you feel should be included then leave a comment to that effect so that we can develop and improve this tool for people in difficulty.

This is part of an industry-oriented solutions based approach, we don’t intend to ever sell this document or control distribution of it, reproduce it, forward it, print it out and give it to somebody you know who might be in difficulty, our sole hope is that this may bring some degree of help to those most in need of it.

Sincerly, Karl Deeter, Irish Mortgage Brokers.

[This document is a pdf you will need to have adobe reader installed to view it, you can get Adobe Reader by clicking on the image …

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Beware of Expert Opinion from Promoters.

Lately we have been witnessing a resurfacing of property promoters in the press after a long period of silence. We want to reassert our advice that people should do their own homework before embarking on a large asset purchase be it property or otherwise.

How can you tell if it makes sense to buy a property? Our suggestion, as a financial firm, is that you talk to a financial adviser, you determine your own circumstances, you look at your own unique situation, and that you don’t base your opinion on what you hear on the radio or TV from people in the property business. The people who are restarting to champion property now are doing so under the banner that ‘it is cheap to buy’, part of the ‘cheap’ is due to exceptionally low interest rates, which invariably will go up some day.

That is not to say ‘don’t buy property‘, far from it, what we are trying to tell people is ‘make prudent decisions’, don’t buy any asset you can’t afford …

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Deflation, the low paid, and expansion of the tax base

Here are some statistics (taken from the SBP) showing that contrary to assertions that the ‘rich don’t pay enough tax’ that in fact they pay more than anybody else. Half of all tax income is paid by the top 6.5% of workers. So about 1/15th contribute 50%. One third of all tax collected comes from the top 2.5% of workers, thus 1/40th are paying 33%. It means that things such as the new 2% levy are merely punishing those who already contribute the most! I wrote about this before when talking about the Laffer Curve and how Ireland may be driving high earners out of its jurisdiction.

Sources have said that the Irish tax base is too dependent on a small number of people, so what would happen if we were to drive them out? The implications are severe.

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Will lenders become landlords?

In a recent article on Money Marketing News they said that ‘Lenders in the UK are likely to become landlords by buying up distressed properties in an attempt to halt repossessions and stop house prices falling’ this was according to leading valuations firm eSurv.

This raises some interesting ideas for the Irish market which is seeing bad news filter through constantly, only today NIB released their figures showing they had lost over half a billion in 2008. The losses seem to be concentrated in their commercial lending sector, however, with such small margins on lending being one of their hallmarks, it is fair to assume that a few impairments would have an amplified effect compared to other banks.

In the UK the plan is to set up company that would purchase distressed properties and then turn them into a manageable portfolio until the market allows for disposal at a better price while offering finance against repossessed stock in order to improve marketability.

would this work …

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Financial road maps

Having a plan is important in many areas of life, I would feel it is vital in personal finance, yet a surprising amount of people totally fail on this matter and go through life in an ad hoc manner and they are often wondering why some people seem to do better even though they don’t earn as much as they do. Animals in the forest don’t worry about finance, they do worry about food though, hence they gather for winter, squirrels have figured this out so it is disappointing, given the superiority of human intellect, that many private individuals have not planned for an ‘economic’ winter.

A simple method is a budget, it can be complex or it can be crude but in either case having a crude one is better than having none. Sometimes this is worked out using percentages, for instance:

After tax income x 60% = all expenses (mortgages, bills, food, entertainment etc.)

After tax income x 10% = discretionary expenses (something you may have buy from time to time)

After tax …

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Housing dysfunction

There are some who are saying that there are amazing deals to be found in the current market and if you consider price only then you may be tempted to believe this. Yields could also present a strong argument for property investment if yields stay at historic levels, however yields are likely to fall in 2009 and will remain stagnant until at least 2011/12 for several reasons which we will outline, we will also look at some of the current dysfunction in the market by examining a few types of sellers and how their personal situations express themselves in their selling behaviour.

The first group bought in the last days of the boom, they likely used minimal deposits (or even 100% finance) in order to purchase and they are in deep negative equity, they are now no longer on fixed rates – which tended to be 1/2/3yr fixed- and may have moved into the variable market which revises their payments upwards. One can be forgiven for thinking they may be a ‘distressed seller’ – the distress …

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First Active set to close.

It was announced yesterday that First Active is going to close operations in Ireland. This will start with 750 job losses coming into effect via voluntary redundancies, 550 of which will be in the Republic. Unions in Ulsterbank/First Active have said that bank workers are ‘scapegoats’, we spoke about the coming job losses in April of 2008 here.

RBS have made record losses, this lead to their bailout by the UK government. On the ground here it means that at 45 locations First Active will merge with Ulsterbank branches. The removal of First Active from the market will mean there is less competition in Irish lending, this will set the basis for increased margins on lending – at a time when the ECB is dropping rates. Having said that, First Active and Ulsterbank prices are amongst the most expensive in the market with variable rates of over 6% when market leading rates are under 4%.

In …

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Beware the Contract/Valuation trap

Our firm has seen a rise in what we describe as the Contract/Valuation trap, so we will tell you what it is and how to avoid it as well as steps you can take should you find yourself in this position. The contract-valuation trap is one that occurs when the price of a property being purchased drops significantly between the time the contract is signed and the property is closed. All lending is generally based on LTV (loan to value – see our jargon page for a description of that), however, a valuation which sets the market price in the banks eyes is what the loan is based on, it is not based on what a person was willing to pay for it and this helps to give an independent opinion of the worth of a property.

Another issue is that in a falling market sellers become more ‘motivated’ and by that we mean that they will more readily accept a lower than asking price offer, …

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Approval in Principle, the flaws.

Our firm [and I am sure many brokerage firms] are witnessing a conundrum in the market which is causing both clients and the broker a huge amount of heartache. It is that of the ‘AIP’ or ‘Approval In Principle’ not being honoured by banks over short periods of time. One lender in particular [we can’t name names] is doing that on so many cases that we no longer consider their approvals as holding any relevance.

What is an approval in principle (A.I.P. is the broker-speak we use to describe them)? It generally means that you have given a bank enough information to make a strong [and yet preliminary] decision on a case, sometimes it is subject to further documentation, or they want to get a valuation report before making a full offer, in any case an AIP is NOT a loan offer but it is as strong an indication as one can get without dealing with solicitors, in the past an AIP was honoured almost exclusively and they were seen as fundamental to …

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