Beware the Contract/Valuation trap

Our firm has seen a rise in what we describe as the Contract/Valuation trap, so we will tell you what it is and how to avoid it as well as steps you can take should you find yourself in this position. The contract-valuation trap is one that occurs when the price of a property being purchased drops significantly between the time the contract is signed and the property is closed. All lending is generally based on LTV (loan to value – see our jargon page for a description of that), however, a valuation which sets the market price in the banks eyes is what the loan is based on, it is not based on what a person was willing to pay for it and this helps to give an independent opinion of the worth of a property.

Another issue is that in a falling market sellers become more ‘motivated’ and by that we mean that they will more readily accept a lower than asking price offer, …

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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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Bill Gross of Pimco talks about the deficit in the USA

Bill Gross, known as ‘Mr. Bond’ runs the largest bond fund in the world, in this video he talks about many of the issues facing the economy under the new Obama presidency. Bill Gross is a fascinating character who started his careers as a professional gambler I always enjoy listening to his views on the market which he does with an intersting mix of macro/micro/common sense views.

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The weight of compliance

Compliance is set to become a core area in financial services because one result of the current financial crisis is that people will want to prevent another similar disaster from occurring and the method used to fight this will be (likely) regulation.

After the Great Depression there was a wave of compliance and regulatory measures brought in and it was during this time that the FDIC (Federal Deposit Insurance Corporation) was created, thus guaranteeing depositors funds were safe.

Basel II which was seen as the ‘new’ answer to how risk was mitigated will probably be replaced by some other form of guidance, we’ll call it Basel III for the sake of prediction, or Basel II 2.0 or whatever you like. The fact is that the burden of compliance is set to rise but if not done correctly it could actually happen with little or no benefit to clients or the broader economy.

If compliance becomes weighted heavily in a process rather than principles based approach then it could hamper innovation and the creation of …

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Mortgage Rates

Mortgage rates are normally described as a percentage, be it 5% or 3.98% the important thing to remember is that it merely interprets the cost of that credit to you as a financial debtor to the provider. When you compare rates it is also important to have an understanding of where they came from.

For instance, which rate is better an ECB (European Central Bank) tracker of 5% or a standard variable of 5%? They are both the same numerically but the tracker has a guaranteed margin the SVR (standard variable rate) does not so if the ECB change rates, for instance the way they cut rates in mid-October the standard variable might not come down the full 0.5%.

To be fair most banks have decided to pass on the ‘full’ rate cut, but what they had done in the interim of rate movements was to increase the margin on their SVR’s when the ECB was actually standing still between June of 07′ and …

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