AIB Rate hike: where is it now and where is it going?

AIB have announced an increase in their Standard Variable Rates (SVR’s) as well as in their Loan to Value Standard Variables (LTV-SVR’s: which are tiered variables based upon your loan to value), effective from August 10th. Caroline Madden of the Irish Times and Charlie Weston from the Independent both carried the story today, this comes only days after Allied Irish Bank announced that they lost over €2,000,000,000 in the first half of 2010.

Their SVR now stands at 3.25% but where is it headed? For that it is important to look at several different factors, firstly, their cost to income ratio has gone from 48% in 2009 to 63% for 2010. That means that it is costing them €63 to turn over €100 in income, this is a 32% increase on last year in costs which is a bad indication.

There are a multitude of factors playing into this:

1. Guarantee/ELG costs:

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Rent or Buy Report: 2010 Towards a modest conclusion, by Peter Stafford, Frank Quinn and Karl Deeter

The ‘Rent or Buy?’ report was featured on RTE1 ‘Drive Time with Mary Wilson‘ yesterday, it was prepared by Dr. Peter Stafford (Independent economist recently taken on by the Society of Chartered Surveyors), Karl Deeter (of Irish Mortgage Brokers) and Frank Quinn (of Senior College Dun Laoghaire). In the report we ran six different future scenarios with a view to determining whether it made better sense to rent or buy a property.

The findings are in the report, you can download it by clicking on the image to the left.

Our findings were fairly consistent, showing that in almost every future scenario that renting makes better sense from a cost perspective than buying does. The times that buying is better is in an upward only market and a flat market.

That may help to put numbers …

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The good things about Negative Equity Mortgages (for the banks)

There was a post on Geckko’s World about Negative Equity Loans – and he rightly pointed out that there had been an instant and widespread denouncement of them, then going on to point out that if a person was to try to reduce their debt that it could in fact be a very good concept. My opinion is that the focus will not be as a facility to reduce a persons debt but rather to increase, however, Geckko makes some very interesting and valid points which show that the first reaction was perhaps not totally balanced, as well as giving some smart operational guidelines (it’s worth leaving here for a while to check out the post).

However, there are some distinct advantages for the lender in this process as well which I have not seen any commentary on (if you have please post links in the comment section!).

1: Reduced borrower risk: Surely a higher LTV makes it riskier right? …

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