The return of the 92% loan

We have it on good authority that 92% lending is going to come back to the market in a big fashion in 2013. This doesn’t mean people will qualify, but it does mean that lenders are actively seeing that there is sufficient margin and value in property lending.

Some banks have maintained this stance, others (like Haven, KBC etc.) have peared back their LTV as a way of reducing their lending offering. So competition will be (for creditworthy applicants) based on both LTV and pricing rather than just the former which has been a hallmark of the mortgage market for the last two years.

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Irrational banking, non-competition creating profits unexpectedly.

That banking in Ireland is a little irrational at present is a given, however, there are occurrences in the market which will change pricing structures in the near future, interestingly, by trying not to compete for business, several banks will ultimately make the market more profitable for all of the banks, achieving almost the opposite of what they had hoped to do.

I’ll explain, at the moment we have seen widespread Sovereign Credit Retrenchment, that’s a fancy way of saying that banks who are bailed out by certain countries are only really focusing on their indigenous markets because it is those markets that bailed them out. Irish banks have done this, Irish owned UK operations are closed. Equally, UK banks here are doing this by making their existing business rates higher and their new business rates exceptionally high.

Bank of Scotland’s new business variable rate is 6.19%, a whopping 5.19% over the ECB, they are doing this to avoid lending, and they are also paring back LTVs so that you have to have greater equity in the deal to borrow, …

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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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Mark to Market valuations.

This is an exerpt of Steve Forbes talking about mark to market valuations and some of his feelings on the markets as well as where we are set to go from here. He makes the argument that mark to market is a bad idea and that we should use traditional methods of cost & depreciation because the market skews valuations to strongly at a time like this.

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1 in 10 rental properties have dropped prices in the last week.

The website Irish Property Watch has released its latest figures show that from the the 9th to the 16th of November 2008 there were 1,896 rent reductions out of an available stock of 19,349. The average reduction was €93 per month.

The ever popular website posted a thread about this and one interesting observation was that perhaps the ECB rate reduction has accelerated the drop in asking prices on the rental market. Why? Because owners of a pincer movement created by falling rates and vacancies. There are many empty properties on the market and that means supply versus demand has a distinct advantage on the demand side, there are too many properties on the market both for sale and for rent. That would lead to a downward trend in asking prices.

The rate drop has an impact on the supply side, now that repayments are dropping landlords will likely …

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