We were delighted to take part in the Irish Independents first property video blog where we answered questions and spoke about the property market in general.
We were asked to speak to Mary Wilson about the IBF property report on RTE Drivetime. There was a view given earlier in the day that the month on month increase in applications was a positive thing, we chose to look at year on year figures which tell an entirely different story. And while lending is down 26%, drawdowns down over 18%, transactions are up over 14%.
To us this is indicative of a market where credit is not functioning in it’s natural role, price is not the issue, it’s scarcity which is the problem.
Something that people find really frustrating is how they look to a bank for a solution and are simply told ‘no’, there is never any mention of ‘what will work’. Imagine going into a negotiation where you have no idea of what is acceptable to the other party (short of full repayment), or even where full repayment can get rejected!
How are you meant to find any answer -given that all solutions are unknown and unknowable – if there is not at lease some kind of counter offer? Imagine doing this in any other area of your life…
You: I’d like to buy these shoes, how much are they? Shopkeeper: That depends. You: I’d be happy to pay €50 for them, will that work? Shopkeeper: No. You: What will you accept? Shopkeeper: That really depends. You: Do you want more or less or am I even in the right ballpark? Shopkeeper: Hard to say, it really depends…
(then go back to third sentence of conversation and LOOP UNTIL runtime error)
We have said in the past that split mortgages are not all they are cracked up to be, but they do have a place. We even made a nifty calculator to help people see what the results of doing this might be.
The problem with them is two fold, first of all they don’t necessarily work, second is that it is going to be refused unless you can’t even service the interest. Splitting a mortgage requires that the non-warehoused bit is on full repayment, so in 20 years time you might owe half of the original loan (assuming you never ‘un-warehouse any of it), but if you can service interest and keep going then you won’t get one.
Doing this can make sense though, even if the other part of the loan isn’t amortizing because in this situation at least your future debt isn’t stagnant, it’s reducing. The banks are blocking these though, because they have no ‘borrower solvency agenda’ they have only the ‘collect to the point of the person going bang’ agenda.
This week five years ago is when independent mortgage advisors were in the middle of getting some harsh news, some lenders were pulling out of the market completely, others were informing us of 50% cuts to procurement fees.
Fair or unfair? In light of things like Croke Park it would be seen as totally unfair, you’d never get any other industry that takes a 50% hit like this as fast (and then there is the separate issue of lending dropping 95% on top of the 50% reduction).
Brokerage has already been down the path the public sector are on. I recall sitting across the table from PTsb chief David Guinane who in late 2007 called in the broker bodies and informed them that they were getting a reduction that they might not be happy about, but that this was not something we could negotiate.
There was talk in brokerage of boycotting both them and Irish Life in return, and while we were still debating about what to do all of the other …
PTsb have just issued a new rates matrix and the prices are good, they have a standard SVR for all loan to value amounts (ie: 90%) of 3.99% and 3.69% for LTV’s below 70%, these then revert to 4.34% after the first year which is not the market leader but it is right up there in the same ball park.
This (to our thinking) confirms PTsb’s re-commitment to the market, they have said they will up lending to c. €450m from the €60-70 (that’s the mortgage portion, the officially reported 90m includes all credit) they advanced in 2012.
They have also re-deployed staff in their broker centre which was a one person business unit last year! The staffing numbers there will be 5-6 people for 2013 which means there will be ample access for the intermediary channel, obviously direct and branch will also be active, all said it seems likely they may reach their target of €450m new lending.
In the process of negotiating with banks many of our customers feel various things, like intimidation, fear, confusion and anger. In trying to get a lender to give a simple and straight forward response we find that it helps to use a certain language or nomenclature in letters and replies.
The simple truth is that they tend to exert authority if you give them this authority, but if you give them the authority with the express requirement that it forces them to make a painful decision should they act upon it. The letter below is a sample that we have used with a few people who have investment properties and it seems to get a decent result.
Don’t use it until such time as you have filled in your Standard Financial Statement (SFS), the end result you are looking for with a letter like this is to get the lender to accept your rent as full settlement of your account until …
AIB currently have four lending channels, there is AIB direct (their branches), AIB Broker (via the Ballsbridge HQ), EBS (done through branches and administered via the AIB direct system) and finally Haven Mortgages (another broker channel currently still located in the old EBS offices on Burlington Road).
There are four channels all operating off of the same credit pricing and all with different rates! Meaning where you choose to apply will make a big difference, even though under the hood you are getting an identical product. This is a classic example of having a brand name product sold at one price then the ‘own brand’ which is made by the same people as the first one, put into a different package and sold at a different price.
At the moment Haven only lend up to 80% meaning you need a 20% deposit, EBS have gone up to 92% which matches them with AIB (direct and brokerage), so the next rational step is for Haven to go to 92% which we are tipped off will be happening in Q1 of 2013, …
Mortgage rates are constantly under review and even though we might be expecting an ECB rate cut this week to 0.5% (which will be a historic low) it is highly likely that rates will sit still or even rise. The conundrum for consumers is about the rate choice, banks have just upped rates prior to any rate cut and by doing this then not passing on a rate cut they actually increase their margin significantly.
The best mortgage rates at present are below:
<50% LTV: AIB 3.34% >80% LTV: AIB 3.79% 1yr fixed: AIB 4.15% 2yr fixed: BOI 4.49% 5yr fixed: PTsb 3.7%*
*The PTsb 5 year fixed rate is a good example of a pricing discrepancy that is related to the PTsb loan book, this rate is excellent, lower than the standard AIB variable and fixed for 5 years! The reason for this is that by lending on this type of property PTsb will increase their assets (to fix the loan to deposit ratio that is too high) quicker and in return they will give up some margin.
I wrote a piece in today’s Irish Sun about our banks and that the state owned operations are showing a decided lack of inventiveness when it comes to helping existing borrowers.
This may be down to disincentives, issues with management or the Department of Finance, but suffice to say, it doesn’t make sense that non-state owned banks and foreign banks are innovating in potentially beneficial ways for their customers and the banks we paid to save are not.