How falling interest rates hurt banks during a liquidity crisis

The falling interest rates are heralded by consumers of Irish mortgage companies as a godsend – well, for the clients of the Irish banks who actually pass on the full rate cuts that is! However, at the same time it creates a rate compression which damages the bank and this is what we will consider in this article.

Banks have two sides to the operation roughly speaking, on one side there is the lending function which we are all aware of, mortgages, car loans, personal loans etc. on the other side is the deposit taking function which provides part of the money they lend out. There is of course the interbank market which supplements (and often surpasses) deposit funds for lending, but to keep things simple we will focus on a world where deposits roughly equal lending.

When

Read More

The different types of interest rates available for mortgages

By regulation lenders must publish APR‘s as well as the interest rates on mortgages. APR’s take into account all of the costs associated with a mortgage including the set up charges, (the interest rate itself naturally in there too!) and ongoing fees etc.. As long as you are comparing loans over the same term the APR is an accurate gauge of considering one versus the other.

Within the industry we tend to focus on the ‘Cost per thousand’ which is the actual cost of a loan for every thousand borrowed. So we’ll take the following situation

Loan amount: €300,000 Interest rate: 4.8% APR: 5.0% Cost per 000′ 25yrs: €5.73

(normally cost per thousand or ‘cost per 000’ sheets are only held by people within the industry as its a sizeable matrix but if you want to ask a very knowledgeable sounding question inquire about the cost per thousand as it shows the actual end cost of one loan versus another)

Anyway, what would …

Read More

The demise of 100% Mortgages

Mortgages in Ireland continue to evolve, with 100% mortgages in Ireland now a thing of the past. We saw the 100% mortgage products die off here in 2008 because of falling asset prices, the credit crunch and liquidity problems banks are having. Assuming a mortgage will always be less than the value of a property is a misconception and for that reason many people are finding themselves in negative equity.

However, that isn’t the end of the world, if you are in negative equity the loss is ‘real’ but not ‘realised’ unless you sell up at a loss. This is perhaps not a cure but it gives some perspective to dealing with the situation. Our firm have been brokers in Dublin for quite some time, and combined we have over 100 years of experience in helping our clients get the cheapest mortgage rates and to make financial plans, however, in the current environment more than ever we are finding that broker advice is vital because there is literally so much at stake for peoples finances. Property is taking a hit, …

Read More

First Time Buyers can’t catch a break

First time buyers are being told ‘now is the time to buy’ in the papers. I think it’s time to spell out a few home truths for the prospective buyer just so that they are 100% sure of what they are getting into. Buying a home is fundamentally a good thing, doing so without knowing the facts however is not.

Firstly, property is in a downward market at the moment, that’s not opinion, its a fact. You can dress it up as a ‘re-adjustment’ a ‘balancing out’ or an ‘inter-cusp reductionary period’, heck, call it ‘my granny’ for all I care, it’s still down, plain and simple. So if you put an offer on a property and an Estate Agent tells you ‘you have to sign soon or you’ll lose the place!’, then lose it (unless they accepted an offer so low you have to snap at it!) no guilt, no apologies, and don’t you dare pay full asking price! The current Irish property market favours the buyer not the seller. I would even advise our clients to offer below …

Read More

First Time Buyers can't catch a break

First time buyers are being told ‘now is the time to buy’ in the papers. I think it’s time to spell out a few home truths for the prospective buyer just so that they are 100% sure of what they are getting into. Buying a home is fundamentally a good thing, doing so without knowing the facts however is not.

Firstly, property is in a downward market at the moment, that’s not opinion, its a fact. You can dress it up as a ‘re-adjustment’ a ‘balancing out’ or an ‘inter-cusp reductionary period’, heck, call it ‘my granny’ for all I care, it’s still down, plain and simple. So if you put an offer on a property and an Estate Agent tells you ‘you have to sign soon or you’ll lose the place!’, then lose it (unless they accepted an offer so low you have to snap at it!) no guilt, no apologies, and don’t you dare pay full asking price! The current Irish property market favours the buyer not the seller. I would even advise our clients to offer below …

Read More

100% Mortgages, how to get a 100% mortgage

100% Mortgages became quite popular in Ireland recently and up until the credit crunch they were proving to be the answer for many young buyers, the reason for requiring a 100% mortgage is normally because a person has been renting and paying off college debt etc. and for that reason they were not able to save up a deposit of 8-10% or more. Given that Irish property prices (at least in Dublin) were – and still are – above c. €350,000 it means you would have to save up the guts of €35,000, no easy feat even if you didn’t have college debt and lived at home.

The issue currently though is that the Irish property market is in a declining phase, so lenders have pulled back for the most part from 100% mortgages for the simple reason that they could be in a situation of inverse equity. When you get a mortgage normally you have at least some stake in the transaction, a down-payment or deposit and that portion ensures that you are committed to the transaction, call it …

Read More

Talk the talk and walk the walk (economically speaking)

I wrote an article back at the end of 2005 called ‘the changing face of the mortgage market’ and I sent it off to a few newspapers and several magazines, it went largely un-noticed, when I say ‘largely’ I actually mean ‘totally’. Apparently I was ranting lunacy or something close to it, if you know me you’ll also know that this was a possibility….

Last weekend in a smokey Krakow it was mentioned during a conversation that you need to make a call on things and then fall on your face when you are wrong but remain vindicated when you are right. In the spirit of that conversation (with thanks to our own resident Enda Munnelly) I will list the predictions I had and then we can either collectively laugh at me or not. The main thing is that I put my predictions on the line and show whether or not I can walk the walk.

1. More than 100%!

Traditionally there were two things stopping people from getting a mortgage, the first was qualifying for the loan, the second …

Read More