As part of the ethics in writing this article I made a decided point of not actually reading my initial article so there is no way of knowing if in general I was right or wrong. Anyways, I am pleased to present the second installment and can only say at this point that I hope my integrity is intact come the end of it all. The numbers and the paragraphs below them are the originals from the article at the end of 2005, the Result & Humiliation score are todays take on what actually happened since they were written.
6. Product or client specific lenders
We have already spoken about ‘sub-prime’ lenders, this is product or client specific lending based on a pre-set target market, but who’s to say it shouldn’t work both ways? What about a lender who deals only with people who earn over €100,000 or who have a net worth of €1,000,000? Previously this may have been the stock and trade of the ‘private banking’ wing of certain banks but there is scope for this type of service to be extended out to more people without the high associated costs. More sub-prime lenders will arrive eventually [see point 2] so if there is increased focus in this part of the market it stands to reason that other niches will be targeted, perhaps a lender dealing with property investors only? Or self employed people? There is another [although not technically considered a lender] that deals with people over 65-70 and helps them raise finance on property.
Result: I am a legend. Leeds Building Society entered the market with a tracker loan that only goes to 75% and is aimed at people aged 40+ and they will lend until age 75 with features like interest only etc. On the property investors there were products that came out where the bank will look only at the rent roll versus the repayments and make a decision based on that alone. For the self employed there were also more lenders coming out with self certification and also a re-introduction of functional ‘letters of service ability’.
Humiliation: -8/10, the air is getting thin up here the podium is so high. It will take a few serious clangers to bring me down now!
7. Increased compliance and regulation within the industry.
Banking scandals, over charging, Eddie Hobbs and his work for consumer value are all having a common effect, the need for greater professionalism, clarity, regulation and compliance within the industry. If the Financial Regulator brings in rules dictating that any person selling mortgages needs to hold their Mortgage Diploma or any person selling life/pension products has their QFA it would give a big boost to the credibility of the industry, at the moment this is not the case. Although there is strict regulation regarding life, pensions & mortgages, the actual person selling them may not be highly qualified in the field in which they operate.
Result: He shoots, he scores! the Consumer Protection Code became law in June 2007, and there are further moves to create a more watertight regulatory structure, as well as this the professional representative bodies such as PIBA are becoming better run and having a greater voice in ongoing developments within the market.
Humiliation: -10/10 …. If my predictions keep going this well I’ll be speaking in tongues by the end of the day and nostrodamus will need to take a back seat!
8. A slowdown in the housing market
I’ll be a social pariah for this but the speed of growth can’t continue forever. And I said slowdown! Not a fall! Stabilization will be of benefit though because it strengthens the market confidence, how the market reacts to the coming rate hike will be a good indication of how its going. Pensions buying properties is an area that is still driving demand for investment and our healthy economy is attracting immigration and therefore a workforce who will rent and one day buy a home. God makes more people but he doesn’t make more land so property is always going to be a strong investment but the statistics for 2004 show that supply actually overshot demand, simple economics tells us that can’t be a situation that continues indefinitely. One question which I ask myself is that in the longer term -20 to 30 years- birth rates are not rising and if the trend is towards smaller families and assuming immigration doesn’t grow continuously then does it mean that one day our populations growth will slow down or maybe even stop? And if so then where is the demand for housing going to come from?
Result: I am going to call a breakeven on this one because housing did indeed slowdown and although some people are saying there was a fall I would still contend that a fall means a reduction in ‘actual’ value and not ‘perceived’ value, people were asking for too much money plain and simple.
Humiliation: Still at a comfortable -10/10 and feeling every inch the financial wizard, offers to wash my feet should flood in any time now.
9. reduced legal fees become the norm in conveyance.
Not reduced as in ‘0.75% instead of 1%’ we’re talking € 100 or even free on refinancing, and below €600 for first time buyers. More and more people are going through Blackhall place and there is a huge amount of solicitors operating on their own who are offering reduced prices for business introduced to them. This combined with advances in technology and the serious players creating a streamlined conveyance process means its getting faster and cheaper. This savings can be passed on to the client thankfully!
Result: I was wrong, albeit partially, here at Irish Mortgage Brokers you can get legal deals starting at €0, yes, thats right no number followed by a zero, or for ‘free’ if you prefer that terminology. It didn’t spread very far though, I guess sometimes you just have to beat good ideas into people
Humiliation: -8/10 even demi-gods make mistakes…..
10. broker fees
As banks become more competitive on pricing one thing they will probably try to do is reduce broker commissions, if reduced income has to hit somebody’s bottom line its best if its somebody else’s. Brokers already saw this with Ulster Banks quick switch and now the EBS’s product of a similar nature. When brokers didn’t champ at the bit to sell these the bank said brokers were not acting in the clients best interest, if they really believed in the clients best interest they wouldn’t have rolled out reduced commission products which they knew would prove to be unpopular, the fact is the banks want all the profit for themselves and at some stage they will try [successful or not depends on broker reactions] to reduce commissions, this coupled with increased product range, greater clawback periods and compliance in completing business means you can expect to see broker fees become commonplace, even to the extent of having staged fees at each stage of the process so that if a client chooses not to complete that the broker is not left empty handed. You will however be glad to pay these though because brokers will have the knowledge required to save the client money, you have to love capitalism.
Result: Last week Ulsterbank cut commissions across the board by 50%! They also hit the consumer by hiking up their rates and this move eradicated any of the benefit of the increased mortgage interest relief the government spent millions to bring in. Those vultures are officially off my christmas card list.
Humiliation: back to -10/10 I’d nearly give myself an extra 2 points for being so perfectly on the money but modesty must prevail. Banks are going to make a big effort to cut the broker chanell and instead get business directly, of course that means you won’t get an independent choice, for those of you who want to go direct just remember: if you wanted some chocolate would you got to a shop that only sells mars bars? Think about it….
11. a virtual end to variable mortgage rates
Why they haven’t been wiped out nobody knows… Variable rate? Who cares about them when a standard market tracker beats the very best variable rate by about .15%? Variable rates are only there at this stage to make people who are too lazy to watch their finances pay more. If you have a loan of above 200k you can get a 3.1% rate, if you’re loan is less then its likely you have good equity and you could qualify for trackers that are based on the loan to value of your home typically they range around the 3% mark. If you want the flexibility of being on a variable product chose a tracker, if rates rise variables rise anyway and variable rates are not guaranteed to come down if rates fall [one bank in particular remembers this from the may 2003 rate change when they were accused of not giving the full reduction even though they still had one of the best variables in the market!]
Result: I should be the leader of at least a mid-sized nation, I’m so bang on the money that the pain in my stomach is probably a golden egg trying to escape. Variable rates are basically history, banks have them but just for the sake of it and also for the sake of punishing the punters on an ongoing basis who are too lazy to change and move away from them.
Humiliation: -12/10 — I have actually surpassed the limits of what was previously thought of as the boundaries of cool. My advice? Try to copy me if you can.
12. increased reliance on the internet
There is great value to be had from doing business on the internet, companies are often willing to slash prices if you apply online or conduct business online as the cost for them in providing the service is reduced. Irish Mortgage Brokers have a system where you can track your mortgage online via a secure login and send messages direct to your broker, if you apply online you may receive free legal fees in some instances. 123.ie are offering cut price insurance products online and this is an area that is sure to grow and grow. Smart shoppers check the web first so they have something to compare to if they do pick up the phone.
Result: Onling banking has increased two fold, online everything is on the up along with greater broadband market penetrations. Is karl deeter (btw: I alwasy write my name in lower case) a prophet? yes he is! On that note: I won’t get angry if you name a teddy bear after me. Or make a satirical comic whith me in it.
Humiliation: -14/10, I’m kind of getting bored of being so damn good, maybe I should spend more energy and apply myself at something I’m not utterly perfect at? (like my modesty and sense of humour maybe!)
13. increased availability of ‘interest only’ on the family home
The current availability is quite restricted at present, as pension legislation comes on stream and there are further encouragements to have a pension people may start to split or go full interest only on their own home and chose to fund a pension instead of paying the bank the capital at the moment only 52% of workers have a supplementary pension. The savings standards set by the SSIA’s shows that with the right incentive we can put some money aside! Also with house prices running high some people may want to go interest only for cash-flow reasons [IIB and Bank of Scotland are the main providers presently]
Result: Call me the Postman, I ALWAYS deliver! Leeds Building Society have brought in this product as have several other lenders, some with restrictions but nonetheless the option is there and it became more widespread.
Humiliation: Should I even bother keeping score when you are this far beyond reproach? Well… yes actually karl deeter stands at a whopping -16/10!
14. [lest I get shot] – property taxes.
Yes, the bankroll this would provide our government with doesn’t bear thinking, it would give enough to completely overhaul the health system, give us one of the best educational systems around perfect infrastructure [depending how hard they squeeze!]. We could create a nation of highly educated people who would have to leave in order to make a living because a house is too expensive to buy, the wages are not high enough, if you do make anything decent its taxed at 42%, insurance costs are insane, the stamp duty didn’t get revised and you get taxed on the place once you have it! [didn’t we do this in the 80’s?]. In any case, your home is potentially a taxable asset and eventually the government will want their pound of flesh. Currently the tax on property comes from stamp duty and income tax on rental property, but with S23 allowance offsetting all case 5 rental income the people who make the most money in this area generally pay the least tax – remember the article about the 200 people who made over 500k paying zero tax? One way to solve this is to end Section 23 once and for all instead of dragging it out as they have in previous budgets albeit the party doing this will lose a few votes. Needless to say, this could be a windfall for the state coffers if imposed and it would help subsidize the lack of corporation tax being taken in which in itself can’t be raised because we’d lose international and multi-national investment . There are other horrors looming on the horizon that may justify this as well, namely the pension shortfall that will kick in soon which brings us to our next point.
Result: This type of idiocy calls for a kick in the teeth and for my house to get repossessed. However – The government did pull a sneaky tax hit on big investors, they got the people who were making wads of cash and sheltering it with section 23 housing and they capped how much they could earn. So basically they make this perfectly legal loophole and then the people that use it get short shrift because a newspaper article said they earned too much without paying tax. Kind of makes ‘tax avoidance’ schemes kind of pointless doesn’t it?
Humiliation: -15/10 I’m only deducting one point because I was half wrong the second part of prediction 14 did kind of come into effect and the capping means that I was partly correct, and besides I’ve been right on almost everything else.
15. Watch it all go backwards… reverse mortgages.
At the moment there 500,000 people over aged 65 and there are 5 people working for every pensioner, by 2036 there will be 1.1million people over aged 65 and only 2 people working for every pensioner. Pensions and long term care will be a priority, and given these figures its not realistic for the state to fund for this. One way of doing this will be the introduction of ‘Reverse Mortgages’ where homeowners can top up their incomes by mortgaging a portion of their property which is then recouped by the state, this can help provide a lump sum or income stream which may be necessary for the c.200,000 people that will require some form of care [in their own home, community, or in residential care] by 2051. There are privately owned companies operating in this market as well who will buy a portion of your home [dependent on age and other criteria] that must be repaid upon your death, they can then sell this percentage of your home as an investment so people can invest in property without actually having the hands on requirements of being a landlord. Every market has derivatives and this will certainly be a growing one in property. Although we have a socialist thinking government we are fundamentally a capitalist country in many ways, and if somebody is living in a one million euro valued home should they get state subsistence? Watch this space as it will become a national agenda soon.
Result: Beat me in the face, preferably with something heavy and made of wood or steel. What the hell was I thinking? On a serious note – this could still become reality, it just didn’t happen within the two year timeframe that the rest did. This one will more likely be a 5-15 years away kind of thing. Maybe I’m thinking too far in the future on this one.
Humiliation: I’ll whip 3 points on this one for being an imbecile. so its -11/10
A very respectible minus eleven out of ten (-11/10) means that in the future when I say something is going to happen you can be fairly sure I’m not spouting the words of a crazed man or just jibbering away for the sake of it. For the most part the things I wrote about in 2005 are a reality in 2007.