We were asked to speak with Pat Kenny today about variable rates and the government plan to intervene to make banks drop them. This was, after considering various pieces of evidence shown to be a deeply political rather than pragmatic move. We also demonstrated that there are documents which the Minister for Finance had drafted up with the banks specifically stating that he would not intervene on matters of pricing, the recent round of ‘meetings’ is in direct contravention of that.
I haven’t done anything wrong, in fact, I’ve done something right (just this once!)… I didn’t crash my car or have any claim against my insurance and yet the price this year has gone up? What have I done wrong? Why is my insurance getting more expensive?
Curious in Tipperary,
(that acronym is for ‘Curious in Tipperary’, not the other word it may look like)
The simple fact is nothing ‘wrong’ has occurred from a personal point of view, you didn’t ‘do’ anything, rather (no joke) it was actually the rest of the world who made the error…. O.k. it’s not that simple, but it ain’t far off either.
The way insurance companies make money is by taking premiums from you, a certain amount goes for ‘re-insurance’ where they pass on some risk to another company, in essence the insurance company takes out insurance – in the last year there have been more claims as burglaries increase with the recession, there has been some freakishly bad weather with floods, freezes and snowfall all wreaking …
A highly debated element of the recapitalisations to date and the NAMA debate have to do with credit flow, that if banks are given money that they will start to lend it out, the problem being that we currently have a rapid credit contraction.
The new Financial Regulator Matthew Elderfield made his first public appearance since arriving nearly three months ago, and he said “A robust recapitalisation exercise will ensure that Ireland’s banks start this process in a stronger position and with a better funding outlook”. He is alluding to the thing that many people are forgetting, that when a bank has as high loan to deposit ratio they naturally hoard credit during times of widespread credit deterioration in order to ensure they have sufficient capital to face the impairments.
NAMA won’t ‘force lending out’, this is the aspect of fiscal policy not being able to ‘push on a string’, fiscal and monetary policy can pull a string and reign credit …
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.
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 …
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 …
The most popular question I am asked as of late is whether or not we are at the bottom of the housing market, and the answer is ‘no…. but perhaps closer than we think’. Today we will consider a few of the things we will need to see in order for ‘recovery’ to occur.
First of all we need to see a reduction in the massive overhang of housing stock, even if the number reduces, they all need to be sold and a degree of scarcity will need to develop in order to make prices go up again, currently supply is swamping demand and that dynamic will leave uncertainty in its wake.
However (and here is part of the ‘perhaps closer’ bit), NAMA will likely take a lot of housing off the market, in particular it will take it off the market and drip feed it back in, if this happens then it will avoid devastating fire sales, it might also lead to stagnation …
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.
Banks have a pool of money called ‘zero rated funds’, this is the money that they hold for which they are paying no interest. Lots of current accounts fall under this category, and banks can figure out with time, the block that is there on a regular basis when you remove the marginal volatility in the funds held at any time.
Imagine you own a money shop and you buy in money and sell it too, in the till you know that no matter what happens you always seem to have at least €60 in the till, that would be the equivalent of your zero rated funds (hope that makes sense!).
When banks lend they take these zero rated funds and mix them with money bought on the market to come up with ‘blended rates’. So while some money is costing 0% other money might cost 1.269% (that’s today’s 3 month Euribor ), you then get an average of these and depending on what the ‘blend’ or ‘mix’ is your …
I have read several articles in this week in our national papers and in them the authors said ‘banks are not lending’ and in one it was implied that this was somehow wrong. A point of order must be raised, firstly, it’s not wrong and secondly they actually are lending, just not freely or irresponsibly.
The frustrating thing is that even after all of the fallout, all of the crashing property prices, all of the international crisis news, that so many people still don’t get it. Cheap credit and easy lending is what go us here to begin with, we won’t fix the Irish economy with more mortgages being freely available.
Lobbyists take note: While you might strong-arm or influence the Government (I don’t know which method lobbyists use but either way they are effective) into supplying money for mortgages via recapitalisation or Homechoiceloan or any other plan, the fact is that reasonable people will not sign up to it, they will buy when …