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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Sunday Time: OpEd on Mutual Building Societies

The Sunday Times ‘Money’ section ran an opinion piece by Irish Mortgage Brokers on Mutual Building Societies in which we lamented the end of an era but made the point that the benefits of mutuality no longer exist given the market we are in.

Mutual building societies have an interesting history but their purpose was ultimately financial intermediation which is what banks nowadays perform, that, along with pricing and the test of the market have shown that Mutuals no longer have a place in the market on the basis of their structure, rather the market requires firms that exist on the basis of competition just like anybody else.

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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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The Criteria Crunch

We have just been informed that one the lenders we deal with are only getting through applications received by the 4th of March, that is a near 20 day delay on new applications they are considering. Why the backlog? Has the market suddenly recovered? Are they being flooded?

No, rather it is a case that in banks nearly everybody has been enlisted to work in ‘collections’ and the staff were taken from every other department, in particular the ‘new business’ section. The bank we are talking about today merged their direct channel with brokerage so even going via a branch makes no difference, the whole company has only four working underwriters.

So inasmuch as the credit explosion saw too many resources being thrown at lending and the expansion of same, the crunch is doing the exact opposite by overshooting the mark in the reduction of resources. For a publicly quoted bank to be 20 days behind means that the market is facing yet another hurdle in reaching its rational level. Lending hasn’t frozen, people are …

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Valuations in property are currently meaningless

Free markets, or indeed markets in general, have a tendency to set prices, not through control, not by one person holding up a placard and shouting from the rooftops, but rather through the process of prices reaching a point at where they occur, where demand and supply are reacting with each other.

So if you look for €3 million for a three bed semi in Donnycarney your property will not sell, no matter how much you want it to. At the same time, if you were to list a property there for €50,000 it would sell overnight, and both of these extremes demonstrate a pricing being totally out of balance with the market. The interesting point now though is this: The market itself doesn’t know what is happening, so valuations are currently meaningless. By that I mean the people who go out and value property are not able to make accurate assumptions about property prices in this market, we are seeing this daily, and then dealing with the end result which is …

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Will stimulus plans lead to disaster?

In this video which was featured on Yahoo! Tech Ticker Peter Schiff of EuroPacific argues that any additional stimulation of the economy or bailout packages will actually exacerbate the situation rather than remedy it. The outcome of the current economy will perhaps decide once and for all who holds the keys to recovery, the Keynesians or the Austrians.

The Keynesian solutions were fine tuned post-fact and this is the first time since the 1930’s that the theory is getting a real life test, in watching the Davos Debates one interesting factor is that Austrian Economics seems to be getting an equal amount of airplay. Stephen S. Roach said at Davos that we need to get on with the ‘heavy lifting’ where the global rebalance occurs, current account deficit nations have to start saving while current account surplus nations need to spend, this is the inverse of what Keynesians would perscribe because under their guide countries like the USA (deficit nation) need to spend their way out of …

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Will lenders become landlords?

In a recent article on Money Marketing News they said that ‘Lenders in the UK are likely to become landlords by buying up distressed properties in an attempt to halt repossessions and stop house prices falling’ this was according to leading valuations firm eSurv.

This raises some interesting ideas for the Irish market which is seeing bad news filter through constantly, only today NIB released their figures showing they had lost over half a billion in 2008. The losses seem to be concentrated in their commercial lending sector, however, with such small margins on lending being one of their hallmarks, it is fair to assume that a few impairments would have an amplified effect compared to other banks.

In the UK the plan is to set up company that would purchase distressed properties and then turn them into a manageable portfolio until the market allows for disposal at a better price while offering finance against repossessed stock in order to improve marketability.

would this work …

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Things are gonna change 'round here.

The banking sector is in for some big changes, today we will consider some of ‘what may be’, this article is taken with a view of looking at some of the results that could come out of the current financial market.

One brief mention is deserved for out all time low-popularity bankers. I am not banker, but I do have some understanding of the financial systems which is what forms my opinion… There are people calling for the government to cap the wages of bankers. We should not have government officials decide their wages, as bankers never decided government wages despite pay rolling the state for years during the upturn. Banks and credit flow are the basis of modern society, lack of which is one of the hallmarks of second and third world countries.

If politicians want to make a true difference they should cut their own wages, its seems ludicrous that our Taoiseach earns more than the President of the USA. And if they want to challenge them on the grounds that financial institutions ‘brought the country down’ it …

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Things are gonna change ’round here.

The banking sector is in for some big changes, today we will consider some of ‘what may be’, this article is taken with a view of looking at some of the results that could come out of the current financial market.

One brief mention is deserved for out all time low-popularity bankers. I am not banker, but I do have some understanding of the financial systems which is what forms my opinion… There are people calling for the government to cap the wages of bankers. We should not have government officials decide their wages, as bankers never decided government wages despite pay rolling the state for years during the upturn. Banks and credit flow are the basis of modern society, lack of which is one of the hallmarks of second and third world countries.

If politicians want to make a true difference they should cut their own wages, its seems ludicrous that our Taoiseach earns more than the President of the USA. And if they want to challenge them on the grounds that financial institutions ‘brought the country down’ it …

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The demise of 100% Mortgages

Mortgages in Ireland continue to evolve, with 100% mortgages in Ireland now a thing of the past. We saw the 100% mortgage products die off here in 2008 because of falling asset prices, the credit crunch and liquidity problems banks are having. Assuming a mortgage will always be less than the value of a property is a misconception and for that reason many people are finding themselves in negative equity.

However, that isn’t the end of the world, if you are in negative equity the loss is ‘real’ but not ‘realised’ unless you sell up at a loss. This is perhaps not a cure but it gives some perspective to dealing with the situation. Our firm have been brokers in Dublin for quite some time, and combined we have over 100 years of experience in helping our clients get the cheapest mortgage rates and to make financial plans, however, in the current environment more than ever we are finding that broker advice is vital because there is literally so much at stake for peoples finances. Property is taking a hit, …

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