Round-Up of the week

This week has seen a lot of talk about mortgages and debt relief, but very little concrete information I'm afraid. The Government and Central bank has ruled out widespread debt write offs.

You might remember back during the election campaign, Fine Gael promised a large increase in the mortgage interest relief for people who bought their first home between 2004 and 2008? Well it seems that that promise was for election purposes only. We are to wait until the end of the month to hear the report of a group of experts who will recommend what steps should be taken to help those in arrears/'the negative equity generation'.

The stories doing the rounds include; Banks taking a equity stake in your home in exchange for a reduction in your mortgage, mortgages being written off and renting your house from the Government and the introduction of intergenerational mortgages.

The Irish Independant have reported that some lending institutions are writing off debts or allowing people to settle debts for less than what is outstanding. This is being denied by the relevant institutions who very understandably want to avoid the potential for individual customers to take advantage of the situation, this is also known as 'Moral Hazard'.

KBC has increased its standard variable mortgage rate by 0.25% to 4.45%.

Bord Gais has got the approval for its 22% increase in Gas prices from the regulator, the ESB reacted by confirming it would do the exact same thing for its customers.

The number out of work increased by 1600 over the last month, a trend we had hoped that arrested itself some time ago.

The Government tax take figures have shown that they are collecting more then they had budgeted for, which is good news. The amount of VAT collected remains below target which just shows the lack of consumer sentiment out there.

FS

Mortgage Lending down 52%

Figures released by the Irish Bankers Federation show that the total value of mortgage lending by banks has dropped 52% in the last quarter compared to the same quarter of 2010.

First Time Buyers made up 42% of borrowing with lending for investment property at a paltry 4% of the market.

The average new residential mortgage now stands at just €200,000, the lowest level since 2005.

We are in a bit of a chicken and egg situation at the moment, if the banks wont lend to good buyers, property prices will continue to fall which will mean that the banks become even more reluctant to lend!

FS

NAMA's proposed mortgage scheme

NAMA (who today announced a €1bn loss) has announced a somewhat innovative scheme get people buying property again.

It attempts to de-risk the process of buying property and reduce the worries of negative equity for those buyers in the future.

They mention that they hope that the scheme will get the property market moving again, but in reality unless this scheme comes available for non NAMA properties too, all it will do is help shift some of the agencies massive portfolio of property.
The nuts and bolts of the proposal is described here by the Irish Times:

How the scheme would work
Nama would try to sell a house or apartment linked to one of its loans by putting it on the market for €200,000, for example. The purchaser would have to have a €20,000 deposit and would then apply for a mortgage from one of the two “pillar” banks, Bank of Ireland or Allied Irish Banks.
To encourage the buyer to complete the sale and to ease fears about negative equity – where the loan is worth more than the value of the property – Nama would agree to defer the payment of 20 per cent of the value of the property – in this case, €40,000.
The bank then approves the buyer for a mortgage of €180,000 and the buyer makes the repayment on this loan. If after five years the property is still valued at €200,000 or more, then Nama will collect the outstanding €40,000 from the bank. The repayments do not change.
If the property has fallen in value to say €160,000 then Nama would waive the outstanding €40,000 from the purchase price agreed five years earlier. As a result, the home owner would be ahead on their repayments and avoids negative equity as the mortgage is based on €140,000 rather than the original €180,000.
As a result, the bank and the home owner reschedule the remaining repayments around a mortgage of €140,000.

FS

Two more mass property auctions this Autumn

Following on from the success of the two previous mass property auctions in April and earlier this month, Allsops (British Auctioneer) and Knight Frank have announced a new round of auctions.

Allsops will put over 100 properties under the hammer in September with Knight Frank following this up with 30/40 properties in October.

Memorably people Q'd around the block to get into Aprils auction in the Shelbourne hotel on the same day as the IMF were here piecing together our bailout.

Both of Allsops auctions have proved to be a great success, with over 90% of the properties being sold on the day. Auctions are efficient ways of selling properties as once a price is agreed, contracts are signed on the day itself. This means that the people bidding either have their mortgage in place in advance, or which is far more likely these days, they have the cash in hand (not literally!).

So where have all these cash buyers been hiding? The property market is depressed and the level of transactions are only a fraction of what they were just 5 short years ago. The purchasers are bargain hunters

The properties being sold are classified as 'distressed assets', they in the main represent repossessed properties that the bank are trying to off load. Banks don't want these properties sitting on their balance sheets and are happy to take whatever they can get, so they set the reserve prices very low.

It has been said that these auctions are a positive thing as they will help us finally find a floor to the property price slide. I disagree. As these are being bought by people with cash and not by your average house hunter looking for a family home, the auctions do not really represent what could be considered normal market conditions. Until the banks reenter the mortgage market in a meaningful way we will not be able to tell how far prices have truly fallen.

FS

Property dilemma - Sell, rent or buy

If you bought your home in the last few years, you may now find yourself in negative equity. If you have no plans to move and you can afford your mortgage repayments, then negative equity shouldn’t be an immediate problem for you.
However, if you are looking to move up the property ladder (for example if you’re planning on having children or moving in together, or you need to move for work reasons) it can become a problem because you may have to sell your home for less than you owe.
So, what are your options?
Stay put and save
If you can put off moving for a little while and you can afford to do it, then you could stay put and try to set aside some savings in a regular savings account to cover the shortfall if you do decide to sell. Or, if you can afford it, another option is to overpay your mortgage. This will reduce the amount you owe on your mortgage, but may only be an option for you if you have a variable rate mortgage (this includes tracker rates). With a fixed rate mortgage, you can’t usually make additional payments without penalty.
Try to sell your home and buy another
You could also consider selling your property at a loss. However, you will need to make up the shortfall between what you owe on your mortgage and the proceeds you will make from selling. So, unless you have savings put aside, this will not be an option. And, if you do have savings, bear in mind that covering the shortfall will eat into the deposit that you would use to buy a new property.
Get more information on what to consider
Rent out your property and buy again
Instead of selling, another option is to rent out your property and buy a new one. Of course, whether this is an option or not depends on:

• how much rent you could get and whether it would cover the current mortgage and other expenses
• whether you will be able to get a second mortgage and
• whether you have a deposit to buy a new property

Get more information on what to consider
Rent out your property and rent another
If you cannot stay put, maybe because of a growing family or work, but selling is not an option, you could also consider renting out your own property and renting a bigger home or one in a more convenient location. Again, you’ll need to consider whether you can get enough rental income to cover your mortgage and allow you to pay monthly rent on another property.
Get more information on what to consider

Taken from:

http://www.itsyourmoney.ie/index.jsp?p=100&n=569&a=1463

FS

ECB keeps interest rate steady at 1.25%

At the monthly meeting of the ECB yesterday, John Claude Trichet announced that they would leave the interest rate at 1.25%, its unlikely there will be another rate rise until later in the summer, possibly in July.

This is good news for embattled mortgage holders.

FS

Calculate changes to your monthly mortgage

The National Consumer agency has put together a great mortgage calculator which allows you to see what any changes to your interest rate means to you on a monthly basis.

http://www.itsyourmoney.ie/iym/ratechangecalculator

FS

Life Assurance a Beginners Guide

Life Assurance is the type of thing that few of us think about until its probably too late, indeed its the type of thing that we actually never want to need, but the inevitable will happen one day and its better to be adequately prepared.

There are numerous types of policies and each serve their own particular purpose, its best to speak to your financial advisor to have a full review done, he/she will let you know whats the right level and type of cover for you and your situation.

Perhaps its obvious to say but Life Assurance is sold by Life companies, eg Aviva, Canada Life, Friends First etc. In return for a premium, they will promise to pay out a sum of money if an insured event happens. This usually means death, but critical illness is also an optional cover to have.

I will give some information on the main types of Life Assurance. The first type is decreasing term cover.

Decreasing Term Life Assurance

This is the most common form of life assurance in the Irish Market and is usually taken out in connection to a mortgage. It promises to clear your mortgage in the event of death. The level of cover will reduce year by year in line with what is outstanding on your mortgage (apart from a few exceptions, everyone who takes out a residential mortgage is legally obliged to have at least enough life cover to clear the loan in the event of death).

This is the cheapest form of life cover as the risk to the life company is decreasing annually. The premium for this type of policy remains the same for the term of your policy.

This policy will usually be 'assigned' to your bank as security against you mortgage, ie the bank will use the proceeds of the policy to clear your mortgage. Any amount over and above what it takes to clear the mortgage will be refunded to your estate or to the surviving party on the policy should there be two people covered.

If you have cleared your mortgage, it does not make your policy invalid or useless in anyway. As far as your life assurance company is concerned they don't care if you have a mortgage or not, you are paying them to provide you cover, and they will continue to do so weather you have a mortgage or not.

These policies work well with mortgages as the cover decreases and is the cheapest way to cover your obligation to have life assurance. If you are looking for cover to provide for your family if you were to pass away, this would not generally be the type of policy to choose, as it decreases annually, this will of course provide less and less benefit over the years. In my next posts i shall go through other forms of cover and various options and terms common to life assurance.

Again if there is something you want me to cover in more detail, please let me know.

FS

Negative Equity Mortgages

The Central Bank has given approval for negative equity mortgages. This would allow people who are currently in negative equity to but a new house and carry the shortfall across to their new mortgage.

In reality it will only apply to high earning individuals who will, by taking the new mortgage, actually lower their LTV (Loan to Value ratio).

Banks will be able to offer this on a discretionary basis but the Central Bank has disallowed them to actively promote the offer. But note, if you currently enjoy a tracker rate on your current mortgage, this will be lost.

FS