RTE News at 6 features Irish Mortgage Brokers

We were asked for a comment on the Central Bank switching report by RTE News at 6. We believe it is telling us what many already intuitively know, that by being assertive and moving away from lenders who charge more that people will ultimately save money.

There is a counterbalancing argument about the savings being estimated over the life of the loan, but equally, the report doesn’t factor in switching contributions which could sway it back in favour of moving from expensive providers to lower cost lenders.

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Moving paper or ‘selling your mortgage’.

In the USA and Canada they sometimes refer to a process of ‘moving paper’ which is where a person sells their mortgage – the actual debt and all the conditions that go with it. That might sound kind of pointless but it would certainly be a valuable option in Ireland and could perhaps offer (if it existed: it doesn’t) a selling advantage of debt holders over non-debt holders in selling a property.

Take an example of a person selling a house for €200,000 if they were able to offer their current mortgage of ECB+1% to the prospective buyer then it might be an attractive proposition! In particular, the bank might benefit because even if the person was in negative equity it might be worthwhile to buy such a debt product at a premium.

People don’t think about buying or selling mortgages (institutions do it all the time), and yet we readily consider buying and selling debt (which is what the bond market is). Why can’t we do the same for the individual …

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Understanding why mortgage rates MUST rise.

We have been saying for some time that interest rates on mortgages must rise, you can look at supply and demand, or you can look at the types of products that have ceased to exist such as tracker mortgages (removing fixed margin loan products) and then there is the proliferation of variable LTV products which set the stage for the ability to manipulate margin on more loans. The question is ‘what all of this means’, and the purpose of this post is to explain how deposits, business lending and mortgages are all interconnected parts of the banking system and how margins are set based upon them.

Last week PTsb finally came out and said that they were considering an

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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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The numbness of the bottom

When bad news stops having an effect then it is a sign that we may be approaching the bottom, if that bottom is an L shape or a U shape is down to how the crisis continues to pan out. However, the acceleration of the decline has been so rapid that unlike the depression, we are seeing wealth wiped out much faster, in the late 20’s early 30’s the drop in the Dow went from 343 to 71 over the course of three years, today the Dow went from 14,000 to 6,900 in just over a year. That same 50% drop took more than a year and a half from 29′ to 31′ (the crisis accelerated after that). However, an important difference between now and then is that the state sponsored institutions didn’t exist, such as state supported medical care and social welfare.

Bearing this in mind what can we determine of the near term future? For a start, bad news is no longer effecting share prices the way they normally would, a …

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Beware of Expert Opinion from Promoters.

Lately we have been witnessing a resurfacing of property promoters in the press after a long period of silence. We want to reassert our advice that people should do their own homework before embarking on a large asset purchase be it property or otherwise.

How can you tell if it makes sense to buy a property? Our suggestion, as a financial firm, is that you talk to a financial adviser, you determine your own circumstances, you look at your own unique situation, and that you don’t base your opinion on what you hear on the radio or TV from people in the property business. The people who are restarting to champion property now are doing so under the banner that ‘it is cheap to buy’, part of the ‘cheap’ is due to exceptionally low interest rates, which invariably will go up some day.

That is not to say ‘don’t buy property‘, far from it, what we are trying to tell people is ‘make prudent decisions’, don’t buy any asset you can’t afford …

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Understanding Deposit & Lending Margin relationships

Part of the way you can get a view of a lenders margins is by looking at the deposit margins they offer because deposit margins usually reflect – at least to some degree – lending margins. This is because there are two sides to a balance sheet with any bank, on one hand you have deposits which you attract in order to fund lending so if you have low deposit margins that is probably indicative of having low lending margins (although not always!), however, if you have higher deposit margins it is almost certain that you have high lending margins.

NIB released their results today so we’ll take them as an example as well as Anglo Irish Bank to demonstrate the way that you can read into certain elements of how a bank is run from the outside and also on the type of business they engage in.

For a start you’ll need to know that average margin on a mortgage with many banks is less than 1% and that is from …

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Understanding Deposit & Lending Margin relationships

Part of the way you can get a view of a lenders margins is by looking at the deposit margins they offer because deposit margins usually reflect – at least to some degree – lending margins. This is because there are two sides to a balance sheet with any bank, on one hand you have deposits which you attract in order to fund lending so if you have low deposit margins that is probably indicative of having low lending margins (although not always!), however, if you have higher deposit margins it is almost certain that you have high lending margins.

NIB released their results today so we’ll take them as an example as well as Anglo Irish Bank to demonstrate the way that you can read into certain elements of how a bank is run from the outside and also on the type of business they engage in.

For a start you’ll need to know that average margin on a mortgage with many banks is less than 1% and that is from …

Read More