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Sunday Times - Question of Money - February 27. 2011

Posted by Jill Kerby on February 26 2011 @ 09:00

Finding a negative equity mortgage is improbable

JK writes from Dublin: I want to buy a bigger house but am in negative equity of €100k plus. My present mortgage provider has informed me that although I qualify for a new mortgage, they will not provide cover for the negative equity. Do you know of any provider that will include negative equity in a new mortgage? Do you have any advice for the lots of people who are in my position?
 

To my knowledge, no lenders will extend credit to owners of property in negative equity, especially in a market where property prices still haven’t bottomed out.

One financial advisor I spoke to said that KBC and Permanent TSB might consider, on a case by case basis, a mortgage application involving negative equity but the ideal applicant would most likely be a young professional with high future earning capacity, buying a property that the bank would consider to be very competitively priced indeed.

Fine Gael proposed in its election manifesto that it would introduce new banking provisions that would allow people with negative equity to trade down to a property with a lower market value than that which they originally bought. 

But this only locks in the losses, which is hardly an adequate solution if you are still stuck with a very sizeable loan that may be unpayable during a normal working lifetime.  Frankly, only debt forgiveness or hyperinflation will reduce the huge mortgage liabilities taken on by many thousands of buyers since c2003.

Anglo write-off

TC writes from Meath: I owned shares in Anglo Irish Bank when it was nationalised on the 21st of January 2009. Can I write this loss off against other gains I have made from investments? If so, how long do I have to enact this readjustment of finances?

Revenue has acknowledged that AngloIrish shares are worthless, allowing shareholders to use their losses to reduce capital gains tax. You can offset your share losses against capital gains from other assets – say, from other shares or the sale of a property that is not your principal private residence. There is no time limit for offsetting losses, so for example, if you lost €20,000 on your Anglo Irish shares, you can offset that loss against future gains for as long as it takes to make up the €20,000.

 

Smart moves

TG writes from Co. Mayo: On my retirement, my wife and I investment in a portfolio in Bank of Ireland Life Smart Funds.  With all the talk going on regarding the viability of Irish banks, we are getting concerned about our investment. What is the situation if the Bank of Ireland gets into deep trouble? Since, the funds are only managed by the Bank and the investments are external to the bank do they survive?

Your money is a liability on the balance sheet of Bank of Ireland Life so it could be at risk in a catastrophe. Ireland has no protection schemes for investors in insurance funds, unlike bank deposits.

The good news is insurance companies are in much better financial health that banks. Bank of Ireland will not be shackled to the bank for much longer because European commission has decided that the division must be sold as a condition of the state aid given to Bank of Ireland.  The hope is that Bank of Ireland Life will be bought by a strong international insurance company.

If you are concerned about the value of your investment or how it is managed (as opposed to Bank of Ireland’s future) you should have your Smart Fund reviewed by an independent, fee-based advisor who will report on its performance and explain what costs or penalties you may incur by encashing your fund or switching it to a different provider. 


A safe place

My son, who is a college student, has received a lump sum as a result of an accident. I would like to get advice as to where to invest the money. He intends to finish his education overseas in two/ three years time and would need access to funds at that stage. I would appreciate your suggestions.

If your son needs access to his money by 2013-14 then it probably makes sense to simply find a good deposit home for it – ideally in a secure, solvent institution that offers the best possible interest rate.  The Irish banks are not the most secure financial institutions in the state, and may end up being merged, sold or closed eventually but until then all deposits up €100,000 are guaranteed by the state.

Since it might be best for him not to have immediate access to these funds if they are earmarked for education purposes, you son should be considering a fixed deposit account. The best one year fixed rates range from 3.5% to 3.62% gross from Ulster Bank and KBC and Permanent TSB respectively, but require a deposit of at least €10,000.  If ECB rates go up, as many commentators expect they will by the end of this year, then hopefully the next one year fixed rate he locks into will yield an even better return.  By year three he can then spend a portion of his savings and roll over the rest into another one year deposit term. Finally, as a believer in ‘real money’ and not just fiat, paper currency, I’d encourage him – if he was my son - to exchange at least 10% of his settlement into gold or silver.  The further debasement of the euro is inevitable as the ECB increases eurozone debt and we are already seeing how prices are rising, partly due to the huge increase in the supply of money and credit to insolvent eurozone countries. 

 


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