Mortgage Question: I have no savings, can I borrow a deposit?

The majority of lenders now insist that your deposit comes from a non borrowed source, and will decline your application if you plan to borrow it. The lenders who will consider your application will assess your application with the new deposit loan as a financial commitment which decreases the amount you can borrow on the mortgage, and because it is a short term loan it will eat into borrowing capacity much more than you may expect.

[eg: €100,000 loan over 30yrs costs c. €420 before tax relief, but one tenth of that, €10,000 at personal loan rates over 3yrs will cost c.€313 per month which would reduce the amount you can borrow by approximately €80,000!]

Short answer: You should aim to have your own equity in the deal via savings, if you borrow a deposit then you are running an additional risk and our firm are of the belief that this is generally not in the best interest of the borrower.

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US Real Estate roundtable.

CNBC hosted a discussion about whether home prices will go up in 2010, with Kenneth Rosen, UC Berkeley Haas School of Business; Matthew Garrison, The Matt Garrison Group and CNBC’s Diana Olick. The American situation is vastly different from that in Ireland but it makes for interesting comparison.

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When the truth comes out about arrears.

I often try to focus on ‘what is’ rather than ‘what is right’ (and sometimes still get it wrong!), but the idea is to look at something from as objective a standpoint as possible. I’ll take the National Geographic for instance (stick with me on this!), if you watch it objectively and see a lion kill a gazelle you realise that it is nature, the gazelle didn’t want to be torn apart, equally the lion doesn’t want to starve to death and if you accept that lions killing gazelles is a perfectly natural thing then you are seeing what ‘is’. On the other hand if you watch the same scene but the build up to it was following the life of that particular gazelle from birth and its a Bambi story then the killing scene becomes a sickening tragedy.

That is the difference sometimes between looking at what is ‘just’ or ‘right’ and what merely ‘is’, I don’t know about you but I certainly struggle with that at times. It is …

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How much of a deposit do I need?

When making a mortgage application this is a question that many first time buyers want to know, how much money do I must I have for a deposit? Well, that kind of depends on which bank provides the mortgage finance!

Lending criteria is different for every bank/building society/lender, this goes for rates, the general underwriting criteria as well as the ‘loan to value‘, the deposit you need is 100% minus the Maximum LTV and that will give you the deposit amount you require. For instance, ICS have a maximum LTV of 92% so the deposit you need – if you are obtaining finance through them – is 100% – 92% = 8%.

What is interesting in that example is that when you go ‘sale agreed’ on a property the estate agent will ask for a security deposit and the balance of 10% at the signing of contracts, this is an example …

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Banks are not competitive?

Roger Bootle notes that markets do quite well at the end of a recession and at the start of a recovery by drawing the benefits of the future down into the present. Roger has a lot to say on the topic of banks, in particular that of banker bonuses – he states (and we agree) that when banks become ‘too big to fail’ they essentially are oligopolies and hence they are able to pay so well. From an Irish perspective the domination of AIB and BOI put some stock in this theory.

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NAMA uncovered

Yesterday the National Asset Management Agency (NAMA) legislation was brought out in the Dail (that’s the Irish Government buildings for our international readers) . We have put some of the developments into simple graphs to give an idea of the way NAMA will work and what the prices are as well as what they mean (for the pedants out there- they were drawn by hand to demonstrate the point).

So the total value of the loans is €68 billion, adding on €9 billion in rolled up interest – development accounts often had this factored into the end sale price, generally showing c. 15% profits (as a minimum) with the roll up included.

The €77 billion in loans will receive a 30% haircut (across the board) meaning the price paid will be €54 billion. It is important to note that different institutions will see larger haircuts than others, so it might be that BOI gets 20%, AIB 25% and Anglo 37% / INBS 42%, the 30% represents …

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Toxic traders, capitalising on volumes

Joe Saluzzi of Themis Trading (I mistakenly read the link initially as ‘the mistrading’!) have recently published a paper which accuses traders of intentionally trading huge volumes where they buy and sell for the same price and in the process make a half a cent per share. The volume of trading is fictitious ‘high frequency traders’, what they do is buy and sell and collect liquidity rebates from the exchange (note: 50 milliseconds is a huge amount of time) in this game. Do it 8 billion times and it really starts to add up.

This is just depressing, actual investors don’t get to join in because the firms engaged in this are doing it within the actual exchanges using the fastest computer technology available. They also have an unfair advantage in how they trade because they use rules intended to match buyers and sellers to their advantage, they find hidden liquidity and in essence remove it from the market as profit.

The most powerful deterrent would be to make a rule …

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