The next movement of the ECB

The ECB has always had inflation, or more accurately the ‘control of inflation’ as its only guiding light. The ECB raised rates by 0.25% on the 3rd of July and now it is time to wait and watch, to see what they will do next. While we don’t possess a crystal ball what we can do is take a brief look at the world and how some market movements may shape the next meeting of the ECB.

We are (worldwide) in an inflationary environment, in Vietnam inflation is at 25%! The highest it has been since the Vietnam War. The government there is trying to stop the importation of gold, because the Vietnamese have surpassed both China and India in the levels of gold consumption, in the first quarter of 2008 they imported over 38 tonnes. Why is this happening, and what does it have to do with the ECB?

The ‘Dong‘ is a fiat currency that was born in 1978, after the war, the currency that existed prior to that the French …

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First time buyers didn’t, don’t, and won’t ever have it easy.

Recently the credit crunch has taken a whole new turn, and the way it is affecting the Irish mortgage market is of interest to anybody who has a mortgage. Today’s post will be about the changing position of first time buyers, the end of 100% mortgages.

First time buyers never had it easy, that’s my theory and here’s why: before stamp duty reform they had to pay for any property that was over €127,000 (an old £100,000 before the €uro came in) and that could not be borrowed, it had to be saved, during the time that prices were in that region the wages were much lower and stamp duty was a definite drawback to prospective home owners, on top of that they had to come up with a deposit of 10% which was also difficult because of the taxation system here. Then we all got a bit more prosperous, the Celtic tiger started to roar, cheap money became available and prices shot up. The old first time buyers were now owner occupiers basking in equity and that was fine, …

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First time buyers didn't, don't, and won't ever have it easy.

Recently the credit crunch has taken a whole new turn, and the way it is affecting the Irish mortgage market is of interest to anybody who has a mortgage. Today’s post will be about the changing position of first time buyers, the end of 100% mortgages.

First time buyers never had it easy, that’s my theory and here’s why: before stamp duty reform they had to pay for any property that was over €127,000 (an old £100,000 before the €uro came in) and that could not be borrowed, it had to be saved, during the time that prices were in that region the wages were much lower and stamp duty was a definite drawback to prospective home owners, on top of that they had to come up with a deposit of 10% which was also difficult because of the taxation system here. Then we all got a bit more prosperous, the Celtic tiger started to roar, cheap money became available and prices shot up. The old first time buyers were now owner occupiers basking in equity and that was fine, …

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Average loan life set to rise as we witness the death of the ‘Switcher’ mortgage.

For almost the last decade we saw a market develop where customers were king, and where banks competed for their business, this was an era where ‘refinancing’, ‘switching’, and ‘re-mortgaging’ became a common occurrence, in the 1990’s the re-mortgage market was very small in comparison to where it went from 2000 onwards. The reason for the upsurge was that loyalty doesn’t pay when it comes to the Irish banks, they were giving new borrowers better rates and charging existing borrowers more, the choice of fixed rates for an existing borrower were always more expensive than for the person who had jumped ship elsewhere and come to a bank as a fresh client.

Today we are seeing something that has long been unfamiliar, banks are intentionally being uncompetitive, pushing rates to the point where they are not doing any marginal lending and where their average loan is reaching higher and higher above the ECB currently several banks have broken the 6% mark meaning that rates are now at the highest they have been in almost a decade.

This means that lenders …

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Average loan life set to rise as we witness the death of the 'Switcher' mortgage.

For almost the last decade we saw a market develop where customers were king, and where banks competed for their business, this was an era where ‘refinancing’, ‘switching’, and ‘re-mortgaging’ became a common occurrence, in the 1990’s the re-mortgage market was very small in comparison to where it went from 2000 onwards. The reason for the upsurge was that loyalty doesn’t pay when it comes to the Irish banks, they were giving new borrowers better rates and charging existing borrowers more, the choice of fixed rates for an existing borrower were always more expensive than for the person who had jumped ship elsewhere and come to a bank as a fresh client.

Today we are seeing something that has long been unfamiliar, banks are intentionally being uncompetitive, pushing rates to the point where they are not doing any marginal lending and where their average loan is reaching higher and higher above the ECB currently several banks have broken the 6% mark meaning that rates are now at the highest they have been in almost a decade.

This means that lenders …

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ECB Base rate increased 0.25% to 4.25% today

The ECB (European Central Bank) changed its base rate today to 4.25% which is an increase of 0.25%, the previous base rate of 4% had been left unchanged since its inception in June of 2007.

The move, while not favoured by borrowers, is vital in order to control Eurozone inflation which has been running well above the ‘at or just below 2%’ level that the ECB has intended to adhere to. In the first quarter of the year many commentators were saying that they believed we would see a rate reduction in the summer, this blog on the other hand argued otherwise in articles which were posted in mid March and again in mid April. As recently as May professional commentators (our crew is more along the line of humble observers!) …

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House prices are on the move!

Sherry FitzGerald said yesterday that property prices fell 4.5% in the second quarter of the year having fallen 1.9% in the first quarter. The results to the 12 months to June showed that prices fell 10.2%. So house prices are moving, albeit down.

The factors that are affecting property are mixed and many, primarily the prices are/were too high, and any time assets receive valuations above and beyond what they merit you will see market corrections. We are also seeing a unique time in banking history, and in many respects the property price correction is not dissimilar to the 1929 crash because both of them focus around leverage, I’ll continue on that point in a later blog about ‘similarities in economic history’.

Cheap money from central banks is also on the wane, in fact almost every economy has increased rates in an effort to bring inflation under control, mixed in with the lending liquidity issues we see a two fold effect. First is that there is not as much money to lend, even …

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Online Mortgages for consumers and electronic documents.

The next phase of the Irish mortgage market, and certainly the Irish broker market is to overcome the intensive levels of paper creation and associated running costs, one UK based firm has come out stating that technology will be the key to the survival of the intermediary market.

Paper costs accrue to more than just the physical paper, the storage areas required to hold them, the additional stationary, photocopiers, and toner cartridges, paper also has a massive ‘human’ cost in terms of man hours. If the market was to gain efficiencies in document storage and movement then it would make sense that a document would only ever need to be copied once.

Currently a broker will obtain documents, copy them, verify them, and then send them on to a lender who will copy them once they witness that they have been verified and usually they will scan them in as well. This means that the broker copied them (and maybe scanned them), then the lender copies …

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A tale of two commissions.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.

Some of you may recognise this line from ‘A Tale of Two Cities’ by Charles Dickens, however, I am not a classical scholar, instead it sums up my monetary sentiments for 2008. On one hand we are seeing property prices [the very foundation of the majority of Irish wealth] wither away, as global conditions worse, especially in the USA where house prices are now falling quicker than they did during the Great Depression.

There has been more than a few articles in this blog about the current issues in the broker market, the description I would use to describe it at the moment tends to modulate between ‘ugly’ and …

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Branch distribution by banks is dead.

We have seen headlines heralding the ‘death’ of brokers, however perhaps we need to look at the whole financial distribution market and instead of worrying about brokers take an objective view of enterprise, efficiency, and distribution in general. I did some research on this by looking at the American market, talking to other brokers, by looking at operational efficiency planning in other countries and markets, and lastly was by putting up a post on www.thepropertypin.com which is a site where regular folks who are bearish on property (and into economics) hang out.

There are a few sites out there that I like to browse in order to gauge public sentiment, but the ‘Pin’ as its referred to by the folks who frequent it is perhaps the most open and honest, and it tends to have some heavy economic technicians frequenting it. Granted, the tone of the site is not one that perhaps everybody agrees with but the calibre of the posters knowledge is well above the average Internet forum.

Regarding the …

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