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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Ways to reduce the asking price when buying a property (part 1)

Today we will cover some very practical tips which may help you get a better price when you are looking at a property. We suggest you take this list and print it, then as you are looking at a property check the various sections and use it as a rationale for your asking price, there may be things that were overlooked as well, so at worst this will help to ensure you don’t make unnecessary errors in deciding whether or not a certain property is good or not.

1. Is the garden in need of work? – If so you could ask that they either correct it or that you want more money off, a garden is generally a good selling point so if it is not well presented it can be a ‘red light’ telling you to go through the place with a fine toothed comb.

2. Does the fencing/walls need repair? – again, if there are any issues ask that they are remedied or they can discount the price by what it may cost to put the issue …

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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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How many kicks can a broker take?!

How many kicks can a broker take before rolling over and crying ‘uncle!’. A whole bunch it seems.

Today AIB informed the intermediary market that they were capping commissions at €1,500 per loan as a maximum irrespective of the loan size. We feel that banks reward people unfairly and in a ridiculous short-term manner, AIB are no different but they are doing so at the detriment of brokerage.

I’ll qualify that: currently, broker distributed loans are highly profitable for AIB, they don’t have to pay for broker overhead, branch costs etc. I have it on good authority that they have explained this to broker representation bodies in the past, so why curtail any money a broker might make? (As if the current market wasn’t making it hard enough already!).

Simple, because it means you have more money to keep branch distribution alive, and in order to support unprofitable branches you have to find excess profit elsewhere, one of the soft targets is …

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The credit crisis visualised

This is an interesting animated film on the origins of the crisis, it holds with the view that banks were only ever a part of the problem and not necessarily the sole cause. Central banks have a lot to answer for, as does all of society because when you stop saving and instead spend somebody else’s savings it means that eventually, when it comes time to repay your loans that not only is the money not there, but the productivity has likely suffered as well – income based on lending gives the artificial appearance of wealth but it is a mirage.

part 2

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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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