Central Bank findings on interest only mortgages

The Central Bank released some findings on interest only mortgages (below), we’ll follow up with some commentary and interpretation soon.

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The research analyses the loan characteristics, including loan performance, of mortgages originated on interest-only terms in Ireland.

The main findings of the research are:

While interest-only arrangements have been widely used as a means of temporary forbearance to deal with the current mortgage arrears crisis, mortgages were also originated on interest-only terms during the height of the boom. Between 2005 and 2008, interest-only mortgages were mainly issued to buy-to-let investors on tracker mortgages and at high loan-to-value ratios. Interest-only mortgages were more likely to be issued to buy-to-let borrowers in Dublin and for the purchase of apartments than standard mortgages. The arrears rates on these mortgages are higher than standard mortgages. A significant number of interest-only mortgages are due to revert to principal-and-interest repayments in the next 2 years. The resulting higher repayments for these borrowers could lead to an increase in mortgage arrears. 44 per cent of the buy-to-let interest only borrowers will …

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RTE Drivetime: Talking Money on property investing

We were discussing property investment on this weeks ‘Talking¬† Money’ on RTE’s Drivetime. A few things we focused on was that knowing yield and understanding the risk involved.

One point that should be made is that it’s always a bad idea to put all of your money into any asset, be it property, stocks or otherwise, diversification offers a better protection from volatility.

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A Buy To Let survey

We are doing an online survey for people who bought investment properties in the past, the survey is here.

If you can answer it please do, the research is in conjunction with Brian Lucey from Trinity College, Marie Hunt from CBRE and Irish Mortgage Brokers.

It will help to get a feel for what motivated property purchases and perhaps give some greater insight into the people behind the Irish investment property market.

Your help is appreciated,

Sincerely,

Irish Mortgage Brokers

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Investor defaults and ‘receivers of rent’

Today Bank of Ireland chief Richie Boucher spoke about strategic defaulters, the wording used was different, he spoke about tendencies to engage in “a diversion of rental income that should be coming to the bank”.

Who will the receivers be? I suspect it will be some of the well known estate agents who I know are in talks with other banks on the same basis. The ‘receiver of rent’ clause in many mortgage contracts is often unenforced. The ability to obtain it is not generally contested but it still requires a court order and then the operational difficulty of getting to the property to explain this to the tenant and then taking over the collection of the rent.

Why has the level of arrears spiked in the investment pool of business? Theories abound, my own (which makes me vastly unpopular) is that it is down to making a business decision in favour of oneself. However, getting a rent receiver is not a ‘fix’ and I think Bank of Ireland will …

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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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‘Are we there yet?’…. when will the bottom of the housing market be reached?

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 …

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