The Financial Regulator Report

In Ireland each staff member of the regulator costs 23% more than the international average, their cost to the taxpayer is 88% greater and yet they have responsibility – as a ratio toward population- which is only half that of other countries (to be exact its 96% less).

If that isn’t enough, our regulators deal with 15% fewer firms in terms of the number of actual regulated firms per employee, yet it is 26% more expensive to regulate a company in Ireland than elsewhere, and in terms of regulator staff to financial services staff they are dealing with 17% less than in other countries.

We are overpaying for under-service, in fact, in only one other country does the tax payer foot more of the cost of the bill than in Ireland, and for that we get the statistics above based on the figures below. Angry? You should be.

(the breakdown)

Cost per employee: In Ireland it is c. 23% more expensive for every staff member of our regulator than the international average

Cost …

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The future of compensation in financial services (perhaps!)

I wrote before about the errors of compensation in financial services, in a nutshell people were earning money for short term performance in a long term game. However, what I had failed to do was provide potential solutions, this post is about alternative solutions, it will focus primarily on brokerage (because that is what I know best) but it can equally apply to banks or any financial company.

The basic tenets are

1. Long term reward for long term performance 2. Ensuring that bonus’s, while delivered in the short term, have some kind of long term implication. 3. Creating schemes that reward consistency and best advice, rather than one based on transactions.

I would state in advance, that enacting any of these plans will mean further economic pain for a group of workers who are already at the epicentre of the worldwide financial storm, it would also require considerable will to roll out, as well as the co-operation of the banks, the Financial Regulator, …

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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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The end of Wall Street

This is an insightful look into the financial crisis, looking at it from the view of how mass borrowing for residential real estate lead to a bubble, the political input into the causes as well as the packaging of these loans and how it ultimately lead to the closure of Bear Stearns and Lehman Brothers.

This is a great video set, surprisingly the Wall Street Journal are the makers of it, you don’t see that kind of departure from vested interests very often.

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Are you getting your full tax relief?

There was an article in one of Ireland’s national newspapers last week describing the major issues surrounding the rescinding and subsequent re instatement of mortgage Interest relief. For those who are uninformed about this subject, mortgage interest relief (or TRS) was suspended pending the requirement for every person that previously claimed relief to re-apply for it. This was not a move intended to deprive anyone of their entitlements, more a housekeeping exercise to make sure that things are as they should be.

Thousands of Irish home owners had their tax relief temporarily suspended so that a general process of reassessment could take place whereby people would ascertain that whatever they were receiving in tax relief was correct. The Government spends millions every year on the TRS scheme, and with the exchequer being frightfully strained like Mary Hearney doing a triathlon, it was a necessary to ensure that the recipients of tax relief at source were indeed fully entitled to it.

…

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What do banks want when you apply for a mortgage?

Sometimes I ask the folks in the office about the questions they are asked by clients they are dealing with at the time, often it will result in comments like ‘the usual’… ‘How much can I borrow? What’s the best rate etc.’ and while that is true, another question often asked is one that is implied but not directly a question.

‘What do banks want from me when I am making a mortgage application?’

The answer, in the sense of principles, is that that they are looking for a way of determining your ability to repay a debt, some mathematics is used, some gut instinct often plays a part too, qualitative is mixed with quantitative.

Banks use different general mortgage calculators and these use your financial information to give different brackets of lending outcomes. In looking at your p60 they try to establish a year on year figure for your earnings, if you got a raise in the interim (if you did recently you are a rarity!) then …

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Current account interest rates are set to drop

Banks have a pool of money called ‘zero rated funds’, this is the money that they hold for which they are paying no interest. Lots of current accounts fall under this category, and banks can figure out with time, the block that is there on a regular basis when you remove the marginal volatility in the funds held at any time.

Imagine you own a money shop and you buy in money and sell it too, in the till you know that no matter what  happens you always seem to have at least €60 in the till, that would be the equivalent of your zero rated funds (hope that makes sense!).

When banks lend they take these zero rated funds and mix them with money bought on the market to come up with ‘blended rates’. So while some money is costing 0% other money might cost 1.269% (that’s today’s 3 month Euribor ), you then get an average of these and depending on what the ‘blend’ or ‘mix’ is your …

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Rent to buy: The pitfalls in practice

Rent to buy is not a ‘new idea’, one of my mentors is a man who built over 10,000 homes in Dublin (he retired in the 70’s having started his business in the late 40’s), but in talking to him he spoke of almost exclusively selling houses in staged payments and renting them out to prospective buyers as a way of paying for the property.

The resurfacing of rent to buy is not evidence of the wheel being reinvented but purely of the prevailing economic environment, however, unlike the way it operated over thirty years ago, today renting to buy is having obligations stitched into the contract that may not be possible to meet in the future and therefore it leaves the renter/purchaser in some slight uncertainty.

One of the primary issues is that of ‘loan offers secured’. When you rent to buy you are essentially (in most cases) saying you will buy the property at a point in the future for the market value at the time of completion of …

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Bank of Scotland cut back on LTV’s

Bank of Scotland recently announced that no longer will support an applicant seeking to borrow 90% for a newly constructed, or second hand property.

In view of the new homes gathering market clearing pace, I feel Bank of Scotland have been a little short sighted here. This profile of the property market accounts for a huge amount of business, especially with builders seeking to offload newly built properties at knock down prices. I don’t think I am being short sighted when I predict fervent activity over the coming months with many first time buyers eyeing dropping prices as an economical godsend, match that with a low rate environment and it gives mobility, choice, and all of this at a price that won’t break the bank.

Paying € 1,100 / € 1,200 for a 2 bed city centre apartment makes sense for people who don’t wish to live with their parents. If we move this on a step further, it makes even more sense to buy. With very low lending rates, you …

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Bank of Scotland cut back on LTV's

Bank of Scotland recently announced that no longer will support an applicant seeking to borrow 90% for a newly constructed, or second hand property.

In view of the new homes gathering market clearing pace, I feel Bank of Scotland have been a little short sighted here. This profile of the property market accounts for a huge amount of business, especially with builders seeking to offload newly built properties at knock down prices. I don’t think I am being short sighted when I predict fervent activity over the coming months with many first time buyers eyeing dropping prices as an economical godsend, match that with a low rate environment and it gives mobility, choice, and all of this at a price that won’t break the bank.

Paying € 1,100 / € 1,200 for a 2 bed city centre apartment makes sense for people who don’t wish to live with their parents. If we move this on a step further, it makes even more sense to buy. With very low lending rates, you …

Read More →
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