‘Fix or forever hold your tongue!’, A floor on Rates (with a rise likely!)

Rates likely to rise as per AIB’s statement, and PTsbs actions, what we are trying to tell everybody, in clear English is this: ‘If you don’t have a price guarantee on your mortgage via a tracker or fixed rate agreement then you will be paying greater margin over ECB in the near future than you are now’. If you don’t act upon that information then it is your own decision but you can’t say you weren’t forewarned.

Forewarning doesn’t stop disaster, the historical evidence on that is overwhelming, in particular in the military arena, today however, we will look at some of the potential changes we might see in the market.

Floor Rate: This would be a variable agreement whereby the rate will never dip below a certain level. For instance, a bank might say that in a low rate environment it will (in the future) never allow its variable rate to drop below 4%, …

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Supply, Demand, & Prices of Irish Property – A talk by Ronan Lyons

Ronan Lyons gave a talk to CFA Ireland on the 9th of July on the topic ‘Supply, Demand, & Prices in Irish Property’.

Ronan is one of the most respected voices on the property commentary circuit in Ireland due to his careful analysis and long term association with the nations largest property website daft.ie (from which he gathers his datasets).

This video (click here to go and watch the full play-list) is required viewing for anybody with an interest in the Irish property market.

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When one blunt instrument fails use another

Banks are restricting credit, in a market economy rationing is generally a mistake, but at the same time they can’t come out and say ‘we are restricting who we will lend to’ particularly when the taxpayer is playing such a fundamental role to their survival.

How are banks achieving this? Thus far they have used several tools to do this…

1. Interest rates: This is often referred to as a ‘blunt tool’, and when a lender wants to pull back from the market they look at what the best prices are and ensure that in almost every case they are far more expensive than the other players in the market at that time. It would be like a shop owner wanting to slow the sale of chocolate bars, if they were to charge significantly more than the shop next door then their stock would move much slower than the other persons. This has two effects – it makes their money available for lending last longer, and when it is lent out …

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Banks: give you an umberella when its sunny and take it back when it rains

Samuel Clemens (aka Tom Sawyer) brought us the quote which is the title of this post, ‘banks give you an umbrella when its sunny out and take it back when it rains’, his simply worded expression held as true in Missouri of the late 1800’s as it does today.

Recently we had a client who is on an interest only mortgage, their circumstances have changed right when their interest only period was about to run out, naturally we suggested that they ask for a continuance of an interest only period, while this won’t work down the capital amount owed it will keep their cash flow alive and if you have to chose between owing more and being unable to pay then the former is preferable. Sitting in a pot might not sound great but it beats the raw fire.

The bank were happy to comply and they sent out a letter, it was at this …

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Forensic Underwriting, when is it 'too much'?

Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?

Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.

However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.

Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …

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Forensic Underwriting, when is it ‘too much’?

Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?

Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.

However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.

Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …

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Deflation, the low paid, and expansion of the tax base

Here are some statistics (taken from the SBP) showing that contrary to assertions that the ‘rich don’t pay enough tax’ that in fact they pay more than anybody else. Half of all tax income is paid by the top 6.5% of workers. So about 1/15th contribute 50%. One third of all tax collected comes from the top 2.5% of workers, thus 1/40th are paying 33%. It means that things such as the new 2% levy are merely punishing those who already contribute the most! I wrote about this before when talking about the Laffer Curve and how Ireland may be driving high earners out of its jurisdiction.

Sources have said that the Irish tax base is too dependent on a small number of people, so what would happen if we were to drive them out? The implications are severe.

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Generic overview of the market 2009: by sector

I was asked by a colleague in the UK to provide an overview of the Irish mortgage market, he has often advised the Bank of England in the past on the UK buy to let market, however this time it is in relation to a talk he was due to give to an international financial services group on the Irish economy. Below are the contents of my correspondence which is a no holds barred view of the mortgage market in 2009.

Remortgage: This area is finally starting to see some life again, the rate drops are filtering through and many of the people on fixed rates taken out in 2005/2006/2007  are shopping around, as always new business attracts better rates than existing customers so there is once again an argument for switching.

However, the many people who took out trackers are basically out of the market in the long term as every single lender has removed tracker mortgages from the market, in fact, if you know of a lender willing …

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