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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Four channels, one show, different prices – lending looking up in 2013?

AIB currently have four lending channels, there is AIB direct (their branches), AIB Broker (via the Ballsbridge HQ), EBS (done through branches and administered via the AIB direct system) and finally Haven Mortgages (another broker channel currently still located in the old EBS offices on Burlington Road).

There are four channels all operating off of the same credit pricing and all with different rates! Meaning where you choose to apply will make a big difference, even though under the hood you are getting an identical product. This is a classic example of having a brand name product sold at one price then the ‘own brand’ which is made by the same people as the first one, put into a different package and sold at a different price.

At the moment Haven only lend up to 80% meaning you need a 20% deposit, EBS have gone up to 92% which matches them with AIB (direct and brokerage), so the next rational step is for Haven to go to 92% which we are tipped off will be happening in Q1 of 2013, …

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AIB tightening criteria? Are banks really lending?

In recent days the IBF came out with a very positive story about how mortgage lending has increased year on year for the first time since 2006, at the same time the Central Bank are saying that criteria is tightening and other research suggests that almost HALF of our residential market is transacted in cash!

This is a classic example of two stories that contradict each other, or at least that seem to do so. Can you have tightening criteria with more lending? Of course you can! Demand for mortgages is up year on year (in our brokerage taking gross leads as the figure) about 30% or more.

Banks are saying that they accept the vast majority of mortgage applications (c.62% is their estimate), and the likes of AIB are actually ahead of …

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The trend in lending and deposits

We have been banging on for quite some time about the trend in mortgage and deposit rates, namely that mortgage rates will continue to rise and that deposit rates will start to drop (already happening) and this will continue downwards – in particular you’ll have to watch for zero rated fund movements.

Zero rated funds are the money that banks keep for you (a liability for them) in the likes of demand and current accounts. You used to get zero interest but in return you got free banking. Now more lenders are demanding that you keep a certain balance in the account or you get charged a fee, such as Bank of Ireland’s recent decision to require a €3,000 balance to qualify for free banking.

This creates a near ‘negative interest rate’ for people who don’t keep that sum in their current account because fees mean the bank will cover all operational cost associated with your account for regular banking activity while making money elsewhere with those funds or …

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100% Mortgages, how to get a 100% mortgage

100% Mortgages became quite popular in Ireland recently and up until the credit crunch they were proving to be the answer for many young buyers, the reason for requiring a 100% mortgage is normally because a person has been renting and paying off college debt etc. and for that reason they were not able to save up a deposit of 8-10% or more. Given that Irish property prices (at least in Dublin) were – and still are – above c. €350,000 it means you would have to save up the guts of €35,000, no easy feat even if you didn’t have college debt and lived at home.

The issue currently though is that the Irish property market is in a declining phase, so lenders have pulled back for the most part from 100% mortgages for the simple reason that they could be in a situation of inverse equity. When you get a mortgage normally you have at least some stake in the transaction, a down-payment or deposit and that portion ensures that you are committed to the transaction, call it …

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