Best mortgage rates September 2012

Mortgage rates are constantly under review and even though we might be expecting an ECB rate cut this week to 0.5% (which will be a historic low) it is highly likely that rates will sit still or even rise. The conundrum for consumers is about the rate choice, banks have just upped rates prior to any rate cut and by doing this then not passing on a rate cut they actually increase their margin significantly.

The best mortgage rates at present are below:

<50% LTV: AIB 3.34% >80% LTV: AIB 3.79% 1yr fixed: AIB 4.15% 2yr fixed: BOI 4.49% 5yr fixed: PTsb 3.7%*

*The PTsb 5 year fixed rate is a good example of a pricing discrepancy that is related to the PTsb loan book, this rate is excellent, lower than the standard AIB variable and fixed for 5 years! The reason for this is that by lending on this type of property PTsb will increase their assets (to fix the loan to deposit ratio that is too high) quicker and in return they will give up some margin.

If …

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The pincer of fixed rates while in negative equity

A recent article in the Independent stated that ‘fixed rate borrowers are taking all the pain’. The base rate has fallen from 4.25% to 1.25% with a further rate reduction expectation taking the EU to a base of 1%. What this means is that people who felt the drop off in base rates (tracker mortgage holders & most variable rate holders) are now better off to the tune of about €425 per month.

However, for those on fixed rates the story is the reverse of this, they have not felt any reduction in the amounts they are spending monthly while at the same time many have had to live on less due to wage cuts, levies, and job loss. The fees for ‘breaking’ a fixed rate are usually from 3 to 6 months of payments.

So what can you do? If you have the savings to pay for the move you can go that route, but if you have been …

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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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Will stimulus plans lead to disaster?

In this video which was featured on Yahoo! Tech Ticker Peter Schiff of EuroPacific argues that any additional stimulation of the economy or bailout packages will actually exacerbate the situation rather than remedy it. The outcome of the current economy will perhaps decide once and for all who holds the keys to recovery, the Keynesians or the Austrians.

The Keynesian solutions were fine tuned post-fact and this is the first time since the 1930’s that the theory is getting a real life test, in watching the Davos Debates one interesting factor is that Austrian Economics seems to be getting an equal amount of airplay. Stephen S. Roach said at Davos that we need to get on with the ‘heavy lifting’ where the global rebalance occurs, current account deficit nations have to start saving while current account surplus nations need to spend, this is the inverse of what Keynesians would perscribe because under their guide countries like the USA (deficit nation) need to spend their way out of …

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Irish Government bonds, what is happening?

Governments often have to raise money to achieve their objectives over the short and medium term, in Ireland we do this by raising bonds which is basically where a buyer (private or institutional) acts as the ‘bank’ for the state. The creditworthiness of our nation is currently the lowest in the Eurozone, below that of countries like Greece and Portugal. This means that we have to pay more interest to attract a buyer.

Today Moody’s (a rating agency) has put Ireland on watch for a debt rating downgrade (it means our debt will be considered less secure), and that means that we will have to pay even more in order to attract new investors for bonds. How this trickles down to the person on the street is simple, we’ll have to foot the bill eventually because the ultimate guarantor of state borrowing are the people in that country. The tools to achieve this with are higher taxes and less public spending, both equally unpopular.

For now we …

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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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