Irish Property Investor Report: Spring 2010

We are pleased to release our new Irish Property Investor Report for the Spring of 2010 (click on the picture to view it). The people that put it together this time were Frank Quinn (IPAV), Lecturer in Valuations at Senior College Dun Laoghaire and Irish Mortgage Brokers.

The property figures were provided by PropertyWeek.ie (who also run a non-practitioner site at MyHat.ie) and a critique of the report and methodology (which we deemed  necessary in the spirit of balance) was carried out by Iain Nash.

The news is not positive, we have determined, using our valuation methods; that property as an investment is still unattractive in the spring of 2010, in order for it to make sense prices would need to fall significantly in our major cities in the range of about 39% on average.

Having said that, this report looks at averages and it can’t …

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Are banks lending?

A highly debated element of the recapitalisations to date and the NAMA debate have to do with credit flow, that if banks are given money that they will start to lend it out, the problem being that we currently have a rapid credit contraction.

The new Financial Regulator Matthew Elderfield made his first public appearance since arriving nearly three months ago, and he said “A robust recapitalisation exercise will ensure that Ireland’s banks start this process in a stronger position and with a better funding outlook”. He is alluding to the thing that many people are forgetting, that when a bank has as high loan to deposit ratio they naturally hoard credit during times of widespread credit deterioration in order to ensure they have sufficient capital to face the impairments.

NAMA won’t ‘force lending out’, this is the aspect of fiscal policy not being able to ‘push on a string’, fiscal and monetary policy can pull a string and reign credit …

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Why does a state owned bank subsidise depositors?

There is concept in finance of a ‘risk free rate’, and normally that is seen as being the rate of return on money by a sovereign entity (in our case it’s Ireland), so in a rational market it should always be the case that anything with an implicit state guarantee should pay far less than those without it, because those without it have to reward investors by offering more in order to attract them.

Oddly, in Ireland the institutions implicitly backed by the state are actually paying over the odds, and in effect that means a transfer is occurring from tax-payer to depositor, in short, we are being ripped off when our sovereign guarantee is not factored into pricing.

For example: Anglo Irish Bank are paying 3.1% for a demand account, this means you can take your money out whenever you want, BOI, AIB, INBS, NIB and many others are paying a mere 0.1% meaning that Anglo are paying a full 300 basis points or 3% more than competitors who …

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The day I mis-sold an insurance policy

About five years ago I had a couple in with me who were buying a home, I was helping them to determine their insurance needs and I realised that they had literally no protection if either of them ever fell seriously ill – not via their job/employer schemes or individually. So I suggested that they consider some serious illness cover, it would have cost them about €20 a month but they were insistent that they only wanted what was ‘cheapest and nothing more’.

As an adviser, it isn’t my job to always accept what people say they want because often, with adequate probing and understanding they actually want something entirely different, a skewed but simple way of understanding what I mean is that when saving or investing the majority of people want ‘high growth and high security’ – when in fact, these two features are normally night and day, if there ever was an asset that could deliver high growth with deposit account style security then everybody would pile in and the market would adjust accordingly, therefore you need to …

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Taxing Banks & Taxing Risk

In the first clip, James Galbraith (son of the famous JK), economics professor at University of Texas, discusses whether a new tax on big banks is justified. Ken Bentsen, of the Securities Industry & Financial Markets Association, and Mark Calabria, of the Cato Institute, share their insight as well.

In the second clip Mark Walsh, of ‘Left Jab,’ and Dan Mitchell, of the Cato Institute, discuss taxing banks based on their risk to the system.

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Who has the best mortgage rates?

The ‘best rate’ is a misnomer because interpretation of what is the ‘best’ is a subjective question, for a very conservative person a 10 year fixed rate is ‘the best’ and from that point the ‘best’ will likely be whatever is the cheapest ten year fixed rate, having said that, after careful consideration the best 10 year fixed rate mortgage might be one that allows you to pay off a lump sum during the fixed period without any penalty thereby ensuring that you can eat into your capital quicker, is a feature like that worth extra money each month if it isn’t the cheapest? To some people it may be, to others it isn’t.

If you are considering a property purchase and are not a cash buyer then you will need financing, and this comes at a ‘price’, the interpretation of that price is generally the rate, so which rate is better (we’ll assume you want a 1 year fixed rate), 2.5% or 2.6%? Naturally you’d be inclined to say it is …

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Dealing with arrears – a collectors tale

Today’s post is by a guest writer who we cannot name, but we can tell you that this person works in the collections department of a major Irish lender, this person (or somebody like this person) is the one who will call you if you are in arrears on your mortgage. In this post we will reveal some of the inner workings of a collections official and the various things that they do as well as letting you know some of the unpublished things that you should do to protect yourself. Our guest writer has many years of experience in collections, during both the boom times and the downturn.

So now, over to our guest writer…..

There are a lot of buzzwords in the press at the moment and a few of them are regarding what to ask your lender for if you are in arrears. At this stage we have all been told that if you fall into arrears you should ask for payment breaks and interest only periods etc. However, simply asking does not guarantee that you will …

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The US obsession with home ownership

This is an interesting clip from the Cato Institute and it covers the various vectors of the financial crisis. In this video the speaker talks about the ‘7 steps to failure’ – the basis of the talk is well covered ground at this stage but the addition of the Cato presentation is meaningful and offers some angles that are not commonly considered.

Johan Norberg is a senior fellow at the Cato Institute and a writer who focuses on globalization, entrepreneurship, and individual liberty.

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