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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The myth of nationalisation as the solution for banks.

‘Value for the taxpayer’ is the most common line I hear in defence of nationalisation, and inside I laugh every time I hear this line, because it implies that up to this point we gave been actually getting value for our taxes. If our tax take was managed so carefully in the past (as the argument for ‘value’ seems to suggest because they certainly are not saying ‘we were ripped off left and right in the past’) we would have a surplus with which to counter the current cycle, much like Chile or Norway are doing.

It struck me that value for the taxpayer might be in keeping the banks non nationalised and here are a few points that I have not seen answered adequately in the public domain.

1. If an Irish pension fund takes a serious fall in value due to the bank shares it holds being nationalised (on top of what are already serious losses, wiping the share holders may push a fund over the edge) …

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Drop in Fixed Mortgage Rates likely

In watching the movements of the Euribor Yield Curve we saw that margins were likely to increase on fixed rates, however, over the month of April we are seeing the yield curve drop below levels seen at the start of the month and that will likely result in a repricing of debt.

What we are seeing is the increasingly bearing outlook feeding through to interbank rates with the expectation of the May cut showing a strong likelyhood of going too 1%, that is why the 1 month money has actually dropped below that mark when earlier in the month it was slightly above it.

The yield curve is generally feeding the market information about inflation and it would appear that after the May rate decrease that the medium term outlook is depressed. The lines hold a tight margin until the two year mark at which point the earlier curve trends higher and today’s keeps that c.20bip difference. Fixed rates don’t always change with rate drops because they are priced off of …

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Financial planning? Get a financial planner!

As the lyric goes I’ve been laid up from work my rent is due, my kids all need bran new shoes, money’s too tight to mention… Mick Hucknall soared up the charts in the 80’s with this song, and looking back, society has little changed some 20 years later. In reality, many of us are quite familiar with this …

Financial planning is a phrase that is slowly and surely beginning to permeate society at every level; TV, newspaper, radio, and even bus shelters. Financial planning can be defined as A coordinated process for identifying, planning for, and meeting goals related to financial needs for individuals, families, and small businesses.

As it applies to Joe Soap, it basically means that both he/she and their family are protected in uncertain times. How does one do this? Who should they turn to?

Can we really plan for the worst?  Planning for eventualities is a part of life, and whether we like or not, sooner or later they happen. All a person can really do …

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Rent or Buy the 5 year outlook

Today we are going to look at a comparison of renting vs buying with a five year outlook given the current interest rates, the yield outlook and lastly the cost of renting.

The following figures factor in real life examples taken from existing lending rates/rental prices and the forward estimation on rates is taken from presumptions in the current yield curve (chart is below). The terms applied in each example are 30 years, and the purchase is assumed to be a couple buying together, we can examine the impact for a single person in a separate post.

If you were to take a price of €313,000 for a two bed property (current average taken as a mean of prices in todays daft report – this figure is the Dublin average price across all geographic areas, the figures can be determined for any county the same way) and do the following.

1. Compare the total cost of ownership (we are not factoring in house insurance, bin …

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Geithner plan, re-explained by Khan Academy

Another video from the Khan Academy, talking about the working reality of the Geithner Plan. Really it seems that the plans sole purpose is to allow investors to use taxpayer money to buy assets with all upside and little or no downside by using a credit default swap to insure the deal. Even a zero return isn’t to be balked at when investing during a period of deflation, the way it’s described here puts it out in plain english.

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Some quick thoughts on inflation.

There are a few things that concern me regarding inflation, I have listed them as bullet points.

1. Paul Volcker said that he is concerned with the Fed and Treasury seeking ‘the amount of inflation conducive to recovery’. 2. Bank of England are engaged in Quantitative Easing (fancy talk for ‘Printing Money’), they had a failed bond this week as well which means they will (the UK) have to reassess their par on bond offerings. That means paying more to get the money, to service these loans they will likely devalue Sterling further. This matched with increased money supply will bring inflation to the UK. 3. Increased inflation risk is being priced into bonds. 4. Investment houses are increasingly driving people towards resources as a hedge against inflation because inflation doesn’t reward savers, it rewards those holding assets.

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