Sunday Times Property MoneyComments - 2003

Posted by Jill Kerby on May 07 2015 @ 19:48

STMoneyComment – Jan 12/03


Now that second hand homes cost €260,000 in the Dublin area and about €200,000 in the rest of the country, the house buying experience is hardly going to be any more pleasant this year than it was in 2002.

The only good news so far, however, is that fixed interest rates keep coming down.  Not only do lower rates allow first time buyers a slightly firmer grasp of the bottom rung of the property ladder for a couple of years, but is also an indicator that interest rates generally may yet fall a little more in 2003.

First Active are now offering two year fixed rates of APR 4.3% which translates into about €900 a month for a typical €150,000 loan.  This is a savings of about €75 a month.  Even their five year rates, at 4.6% or €990 a month, is extremely competitive.

And so, I have decided to amend my usually negative view about fixed rate loans, at least to say that anyone who can secure a fixed rate under 5% APR and who genuinely believes that they will sleep better at night knowing exactly how much their mortgage will cost them for the next two or three or five years, should probably look seriously at such a commitment.  If not for their entire loan, then perhaps for a half or third of its value.

The attraction of only fixing a part of the mortgage repayment is that should the ordinary variable rate come down, as it is expected to at some point in the first half of the year, you will at least enjoy the benefit of that fall on a portion of your debt. And you won’t go around kicking yourself for being so utterly fainthearted.

For all of my change of heart, however, there is no getting around the fact that during a sustained period of low interest rates the cost of the peace of mind you are buying is very high.  The five years at 4.6% interest may only cost you €990 a month, but the guy next door, who moved into the new estate on the same day you did, may end up paying under €900 on ordinary variable rate of 4.25%. That extra €100 is actually worth €6,000 over five years. 

My half-hearted endorsement of fixed rate loans would be a lot more fulsome, by the way, if the lenders would declare in 2003 that they will finally abolish interest penalties on fixed rate contracts that are broken before their allotted time.  I don’t think any of them would go bankrupt waiving that extra pound (or euro) of flesh.

ST Comment May 18/03


Last week on Morning Ireland the head of a well-know estate agent had the audacity to declare that there was plenty of good value in Irish property, especially in new homes.  

So what if the average, three bedroom house outside Dublin now costs about €200,000, and closer to €300,000 in the capital?

What was extraordinary was that such a person should be invited to comment about new house starts and their effect on the market.  His job is to get the highest prices at all times for his clients, namely the builders.  The consensus from that side of the purchase contract is that, of course new housing is affordable and good value, and that no one should be delaying buying a new home since prices will inevitably continue to rise, albeit more slowly than in the recent past.

A UK property commentator recently noted that their market, which has also been overheating for the past few years, is like a giant pyramid scheme.  Prices, he said, will keep going up only so long as enough first-time buyers can be sucked into the bottom of the pyramid, panicked at the prospect that if they don’t buy now that they will miss their chance to work their way up the pyramid (like everyone else before them) and so reap the benefit of soaring house prices.  It is the only way they can justify risking taking on such high monthly loan repayments.

It will take a lot more than ‘informed’ sales-twaddle from an estate agent to ever convince me that a 1,200 square foot, three-bed semi-d, 50 miles commuting distance from Dublin, in a completely unserviced estate, is worth €200,000.

Certainly not when every sign indicates that Ireland’s euro-tied economy is seriously faltering and unemployment numbers are only going one way - upwards.


ST MoneyComment – June 1/03


So house buying is stressful is it?

According to a survey commissioned by the EBS, 64% of respondents say that buying a home was one of the most stressful things they have ever done.   Hardly surprising given how 61% of the same borrowers also overspend on house-related purchases.

The EBS used this data to change the application and loan offer procedure at the building society so that after a single meeting with a mortgage advisor, the new borrower will know exactly how much their house-related expenses will be, as well as all the steps they must fulfil to receive a pre-approved mortgage card.  This will tell them exactly how much they can spend when they go house-hunting with the approval set at up to 92% of the purchase price of a property.

This isn’t anything too new.  Lenders have been giving pre-approved car loan certificates to customers for years who then present it to the car salesman, who quickly does the paperwork and hands over the keys.  

This EBS card may be aiming to do the same thing, but should house buying really be made any easier these days, especially for first-time buyers? 

It seems to me that everyone is already in on the act of getting young people into horrific debt:  the ECB, which could yet bring average Irish mortgage rates down to 3%-3.25% with their next rate cut; the Irish government which continues to subsidise mortgages with mortgage interest relief, and lenders who dangle “flexible”, deferred repayment periods, and 30 or even 35 year repayment terms. 

Even parents are conniving with the banks and building societies to release money from the equity in their own homes to help their kids produce down payments.

I may be completely out of sync with the cultural and social ethos of this country that requires every 20-something to be a homeowner before they turn 30.  But the price of housing, especially in urban centres, is completely disproportionate to the quality of most properties and the very notion of achieving value for money.

What amazes me is that we can rabbit on endlessly about the high cost of food, drink, transport and every service imaginable compared to other Eurozone countries (and North America and Australia and New Zealand), yet not make the same connection about property values.

Clearly our salaries have not gone up 350% since 1993, yet property prices have. Taxes have dropped, but someone on a decent, but not outrageous salary of €50,000 a year is still paying close to 50% of their wages in marginal income tax, PRSI and levies.  Whatever money you have left over to spend is sucked away by some of the highest VAT rates in the EU and high charges for services dominated by monopolies, or near monopolies such as health and transport services and domestic utilities like electricity and gas suppliers.  

Meanwhile, the value of our retirement savings are crashing and unemployment, already on the rise, is about to soar along with the value of the euro. 

Last week I spotted a two bedroomed ex-council house in Crumlin for sale for €240,000.  The young person I was with remarked, “that looks like good value.”

No, it isn’t. And the sooner houses join the euro-list of bad value buys, along with groceries, cappuccino’s and haircuts, the better.


STMoneyComment – June 15, 2003


RTE is doing it again, asking estate agents on prime time radio to comment on house prices.   

Last Wednesday morning, the regular cheerleading slot for supporters of inflated property prices was filled by Sherry Fitzgerald boss Mark Fitzgerald who was asked about the impact that the latest interest rate reduction might have on the pricing of new houses.  In the course of his answer about how average national house prices are not as expensive as people think, he stated that prices actually fell in value by 5% in 2001, went up by 20% in 2002 and will go up again by about 12% this year. 

The only one of those figures that seems to gel with reality (as I know it) is the last one.  My records – based on the ESRI survey done for Permanent TSB show that national average house prices rose by about 4.4% in 2001, by 13.3% in 2002 and in the year to date are up 12.7%.   When inflation is taken into account – at about 4.5% - the picture isn’t quite as bad as many think, said Mr Fitzgerald.

House price surveys have been a source of controversy with Sherry Fitzgerald’s figures often at odds with the Permo/ESRI one (and vice versa), but I don’t know anyone who can recall the value of their home (or family members’ or friends’ homes) actually falling in any given year in the past decade.

This revisionist view of the property boom, with all the suggestions of what wonderful value it continues to deliver, is beginning to smack of desperation from the vested interests out there – the estate agents, mortgage lenders and newspaper property supplements that have made fortunes on the backs of pressurised and desperate buyers.  

On Thursday morning Peter Bastable, a well-known mortgage advisor appeared in the rah-rah slot to give a more balanced view of the market.  Maybe RTE finally got the message to start limiting comments on property prices to those ‘experts’ whose raison d’etre is not to ensure they keep going up.



STMoneyComment  - Oct 19/03


The deal that the Gaelic Players Association has just struck for its members with Simply Mortgages - the commission-paid mortgage/insurance brokers - is an interesting one that will no doubt appeal to some players looking for discount-rate homeloans and insurance products, including life, home and travel cover.

Worth €100,000 to the GPA, which has been looking for ways to get its players some kind of financial recognition for the millions they help bring to the GAA. The deal involves a 5% discount on insurance – so long as you negotiate your mortgage through the brokerage company - and a €500 cash refund in addition to an undiscounted mortgage rate which presumably is similar, or even a fraction lower, than the rate offered to all first time or new borrowers.

What the announcement of the three year sponsorship deal did not say – and presumably what will not be too quickly volunteered with the GPA member who comes looking for his typical €200,000 mortgage, is that many lenders already offer special insurance deals to new borrowers – sometimes with up to six months (or 50%) cover free for the first year. Either way, the commission is 90% of the first year’s premium on life cover and c.25% for home insurance.

As for the generous €500 refund, the GPA member might be interested to know that a mortgage broker typically receives 1% commission on the value of the loan from the lender for bringing in the business to begin with.  In this case, that would amount to €2,000, a sum that IFSRA, the financial regulator still does not require be disclosed.

If a Gaelic player wants a good deal he should go to a fee-based mortgage advisor who will search around for the best loan for their needs (which will not involve an endowment or “investment” loan either which carries even more commission), and provides the conveyancing for a set fee.  Since any commission is automatically refunded, this money usually covers the advisor/legal fees. And if you agree to pay your mortgage protection and home insurance in a lump sum they often refund 50% of the commission payable on these transactions.

GPA players may be playing their guts out for the love of their sport, but that doesn’t necessarily make them stupid; taking up this offer however would make one wonder.


*               *             *


The grass is not always greener – or the sun always brighter – in Spain and Portugal.

A surge in property prices means that investors who bought their villas and apartments five years ago have trebled their money, but the downside is that some are also discovering that their Iberian properties may be subject to additional service charges and regional taxes worth tens of thousands of euros; difficulties over compulsory purchase orders of pieces of their properties and persistent petty crime in some resorts like Alicante.

The high cost of flights to certain resorts also has some investors, especially older ones thinking of permanently retiring to Spain or Portugal, wondering if maybe the time has come to sell up instead.

Whatever about the problems some Irish people are contending with in those countries, you really have to wonder about the amount of grey matter being carried around by Irish investors who are thinking about buying properties in places like Bulgaria, Shanghai and Newfoundland, three property destinations now being advertised.

Whatever about the prospects about buying property in communist regimes, the fact that the island of Newfoundland is shrouded in rain, fog, icy mists and snow most of the year and is about as remote as any remote place in Canada, makes one wonder about the volume of grey matter being carried around in some Irish investors’ heads.

Allow me to put this in perspective:  Montreal, a city to which I am very familiar, having been born there, at least has a population of three million, is lively, cosmopolitan and has been enjoying something of an economic and social renaissance in recent years.  Prices are rising, but property is still much lower value that in any other major Canadian city, mainly because of the on-off political instability of the province and high city taxes and charges, which includes high residential property tax.

Montreal property has also been advertised in Irish papers (albeit, houses and flats about 20 miles out of the city) but those ads also fail to mention that the city sits under a layer of snow for five months, is consistently colder than Moscow and is not serviced by any direct flights from Ireland.

If anyone needed any further evidence of a serious property bubble erupting in this country – not unlike the dot-com one that burst in 2000 - surely it is these ads for bijoux apartments in downtown Sofia and Shanghai, and rural retreats in fog bound Newfoundland.


ST Comment – Oct 2003


The Bank of Ireland’s prediction that house prices will rise a further 6% next year suggests that there will be a real slowdown in prices from this year’s anticipated rise of 12%.  But for anyone who is thinking of buying a property, or is spending a lot of money renovating an existing one on the grounds that the capital gain will make up for any worries they may have about high prices (or borrowings) should think again.

The raising by the Bank of England of their borrowing rate by a quarter of a percent is expected to be followed by other modest increases in 2004.  Economists here don’t expect any euro-rate movement over the short term, but they are not ruling out an ECB hike (or two) over the next year.  The combination of a rate increase and a fall in further growth will sharply reduce capital gains and anyone about to buy should start factoring in much more modest increases in the value of their properties and perhaps in the kind of rents that can be charged.

It certainly puts home equity release offers for older people into perspective as well.  At the moment Bank of Ireland’s ‘LifeLoan’ charges 6.9% interest, fixed for 15 years.  In the three years since it has been available that rather high rate – double the variable rate and higher than even ordinary fixed rates - was tempered by the fact that property prices were rising by between 12% and nearly 20% per annum.

House price growth that falls to just 6% doesn’t give someone with a loan that is eating away at the capital value at a compounding interest rate of 6.9% a year much leeway to avoid a significant capital loss.

 To paraphrase the crusty sergeant in Hill Street Blues all those years ago, a time when you could buy a brand new, three bedroom house in Dublin’s Liberties for  €41,000 but paid 10% interest instead of 3.5%, be careful out there. 

The property market is meaner than it looks.


ST Comment – Nov 30/03


Anyone thinking about taking out a fixed rate mortgage might want to consider doing so sooner, rather than later after the new from Brussels last week about the ending of the EU stability and growth pact could result in a rise in the long term interest rates.  Fixed rates have already gone up in recent months with five year fixed rate just under 5%. 

I know this sounds downright curmudgeonly, coming just as the Christmas shopping season gets underway but all the publicity generated by the EU finance ministers letting the French and German off the debt hook is a reminder there is always a price to pay for being in debt.  Euro-zone countries could end up with higher inflation and ultimately higher interest rates.  Individuals who blithely ignore the consequences of overspending also get caught eventually.

The European Commission is considering what to do about this abandonment of the pact.  I bet they wish there was a giant credit card they could demand back so that it could be cut up until the bill could be paid off.  

Not a bad idea for the rest of us.




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