Loan to Value ratio – a video which explains what you need to know about it

The ‘loan to value’ ratio is a key concept in mortgage lending, it is also extremely simple which makes the concept very easy to understand and calculate. What is a little more complex is ‘why’ it matters and what the view of a lender is when it come to the risk associated with the loan to value. This video is just over a minute long and explains what you need to know.

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KBC to move to lower LTV’s for ‘rural’ or ‘non-urban’ homes

KBC Have just announced that they are going to pull back on the loan to value (the amount they will finance on a mortgage) for ‘non urban’ properties, effectively all properties that are not in cities and towns. They have gone as far as defining this.

They are also not taking chances on higher end properties. We are of the opinion that non-apartment second hand homes are almost ‘the only’ market that is active and that at the higher end of the market the fallout will continue, this ties in with the KBC view – they are expressing that very concern by dropping LTV’s on loans over €400,000.

So the new situation is:

Home Purchaser – First Time Buyer or Mover Maximum LTV for loans up to €400K or  less

* Up to 90% for urban areas* * Up to 80% for all other areas

Maximum LTV for loans over €400K

* Up to 80%

* “Urban” locations defined as towns/cities with population of >15,000 and population centres within Meath, Kildare, Wicklow with population of > 3,000 (all at Lender’s …

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AIB Rate hike: where is it now and where is it going?

AIB have announced an increase in their Standard Variable Rates (SVR’s) as well as in their Loan to Value Standard Variables (LTV-SVR’s: which are tiered variables based upon your loan to value), effective from August 10th. Caroline Madden of the Irish Times and Charlie Weston from the Independent both carried the story today, this comes only days after Allied Irish Bank announced that they lost over €2,000,000,000 in the first half of 2010.

Their SVR now stands at 3.25% but where is it headed? For that it is important to look at several different factors, firstly, their cost to income ratio has gone from 48% in 2009 to 63% for 2010. That means that it is costing them €63 to turn over €100 in income, this is a 32% increase on last year in costs which is a bad indication.

There are a multitude of factors playing into this:

1. Guarantee/ELG costs:

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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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