TV3 The Morning Show, Personal Finance with Karl Deeter

This is the full clip which incorporates ‘The Insider’ and the follow up piece in studio about how banks can use your information to sell you things. The majority of people open accounts to keep money safe and to make payments, not to be sold products or have their data used to target them for a sales pitch, we talk about the best way to defend yourself from this.

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Definitions: The ‘Reason Why’ statement or ‘Statement of Suitability’

The Central Bank, Consumer Protection Code, states that all financial services providers must provide a potential customer with a written statement of why the product or service they are recommending is most suited to you.

This is called a “Reason Why” letter, also sometimes called a “Suitability statement”. This letter must state why the  recommended product or service meets your requirements, that you are likely to be able to afford it and it is in line with your attitude to risk.

The letter or statement must be given to you before you accept the product or service. The financial provider will give you a copy and keep the same on file, (you might also be asked to sign this statement)

In layman’s terms this letter / document is your comfort blanket that your financial adviser has recommended a product that best suits your needs and you can afford same.

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Disintermediation – can you beat the banks with alternatives?

Banks take money from depositors, lend it to borrowers and keep the difference between what they pay the depositors and what they lend at, this is the most basic model of banking, and it’s called ‘financial intermediation’.

This doesn’t mean anybody else couldn’t do something similar if they had money and wanted to lend it to another person, the whole idea of letting banks do it is ease of use, that they have risk taking ability, and some indemnity because unless huge tranches of the loans they do go bad you don’t lose your money, on a one to one basis you only need one bad loan to have 100% losses.

It is sometimes a risk worth considering. Take for instance if you have a family member who has substantial money and they want to help out a relative. Depending on the type of relationship they can’t ‘gift’ them the money, nor may they want to, but they can lend them the money.

Doing this means you have to …

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The risk of inflation, who do you trust?

I have no doubt that as we keep pushing more and more money into the system to keep the ship afloat that it may prove to be inflationary, but how much and when? We already saw the hawks point towards rising oil and gold prices as evidence but then those commodities have come back from their highs – perhaps there is a degree of speculation at play, or the fundamentals changed as prices rose, it is easy to suppose, difficult to factually nail down.

The idea that inflation is always and everywhere a monetary phenomena is a famous Milton Friedman quote, but there is a difference at play now versus the way things worked in the past in terms of how the timing might work.

When money was ‘real’ (backed by precious metals), debasement had a very immediate effect, and once it became apparent people would take money out of circulation and have it re-minted elsewhere; that is why ‘sterling silver’ has that name, because British sterling was considered to be of a high quality, the …

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Mortgage Market Trend Outlook 2012

We have made a few more bold predictions in our ‘Mortgage Market Trend Outlook 2012’ and reviewed how wrong many of our 2011 forecasts were as well.

Some of the main points thus far are:

1. That mortgage lending bottomed out in 2011. 2. That IBRC may take on some tracker loan portfolios to de-risk state owned banks (as the state already owns these loans entirely anyway). 3. That rates for existing AIB borrowers will have to go up but that for new borrowers rates may come down with changes to how prices are charged depending on risk of the proposed loan. 4. That deposit rates will start to drop. 5. That up to 25,000 mortgages will be deemed ‘unsustainable’ and that the ‘won’t pay’ contingent of arrears cases may be as high as 1 in 5.

We hope you enjoy this report, we in turn hope that we get some of the calls right!

Many thanks,

Irish Mortgage Brokers

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TV3 The Morning Show – Spend wisely at Christmas

We were talking about personal finance coming up to Christmas on The Morning Show with Sybil & Martin last week. Research has shown that between €550 and €900 euro is the average spend, making it a very expensive time of year. We gave the viewers some very simple ideas that should make it a little easier to avoid the new year blues by spending wisely in December!

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Using rebuild costs to determine if you can buy below costs.

With so few transactions occurring it is hard to get an idea of values when the most common approach is the ‘comparative method’ (we cover some of the pros/cons in our investor reports) which tends to be most accurate when there are lots of sales happening [and for the same reason can be pro-cyclical].

A useful tool for potential property buyers is to see if they can purchase ‘below cost’, this is particularly useful when there are not enough transactions on the market to get good information or if you want to have a gauge you can use on your own.

Construction costs calculated every year by the Society of Chartered Surveyors in their ‘house rebuilding insurance guide’ and by using their estimates as a guide it can help potential buyers discern a good deal when they see one.

For instance, a 1,200 square foot 3 bed semi-detached in Dublin will cost (using their rebuild estimate of €177 per square foot) €212,400 to build.

If you are thinking …

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Bank cost of funds versus mortgage prices

Eurodollar or LIBOR cost of funds is a common phrase in banking, what does it mean or do though?

Banks borrow short term and lend out long term, they call it ‘maturity transformation’ and in doing so they aim to make a mark up on the money, it’s the same concept that a shop uses in selling cartons of milk, fundamentally the idea is the same.

The LIBOR rate is ‘London interbank offer rate’ and represents the cost of funds for a high quality non-governmental institutional borrower.

To get an idea of the cost of funds (and this is currently speculative because Irish banks don’t get offered funds at Euribor [euro equivalent of Libor]) all you have to do is a simple calculation.

We know that banks tend to use three month money and that means that any calculation will always have the interest rate reduced by multiplying it by 90/360 (3 months = 90 days, and 360 = 1 year [I know that in real life 1 year is 365 days but that small change of 5 days gives …

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