Rate hikes could lead to 20 homes a year repossessed

The_Conductor

http://www.unison.ie/irish_independent/stories.php3?ca=184&si=1590929&issue_id=13868

WITH interest rates forecast to continue rising slowly in the medium term, there's little doubt that more and more borrowers are going to be stretched.

Irish banks are now to set aside more money to cover customers with 80 per cent or higher mortgages. Last week, when delivering bumper results, Michael Fingleton's Irish Nationwide revealed that it had only repossessed two houses per year for each of the last five years.

If repossessions followed market share, then there could be up to 20 houses taken back by the banks and building societies each year.

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DESPITE stockbrokers trying to warn investors off property, noting that initial returns are a fraction of those available from even bog-standard deposit accounts or 10-year gilts, there's no sign of big bucks leaving the Dublin development market.

Last week, Noel O'Callaghan, owner of the Davenport and Alexander Hotels, stumped up €7m for a 0.16 acre site on Fenian Street in Dublin 2. This equates to €43m per acre for what is a fairly grubby location. However, the site has planning permission for a seven-storey hostel, with office and restaurant facilities.

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NORTHERN English shopping centres are the new black. Last week a consortium of Irish investors led by BTW Shiels coughed up a cool €43m to purchase the 165,000 square foot Rochdale Shopping Centre.

The complex was sold by Dawnay Day's Puma Property Fund. The latest acquisition follows a spate of other shopping centre purchases in grotty English cities by Irish investors, including Jurys Doyle's Bernie Gallagher, Clarendon Properties' Paddy McKillen and Kingspan's Brendan Murtagh.

Wealthy Irish property players feel the UK's long-running high street spending slump provides a remarkable opportunity to grab cheap, under-performing retail complexes in secondary locations.

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A FIVE-BED Victorian house at 13 Belgrave Square in Monkstown, Co Dublin, was withdrawn at €2.85m at auction by Sherry FitzGerald last week. It was subsequently sold for a higher price.

The same house was sold by Lisney prior to auction in October 1998 for above the guide price of about €698,000. In the seven-and-a-half years, the value of the house has increased more than fourfold.

A four-bed house at 17 Simmonscourt, Ballsbridge, was sold by Lisney for €1.5m last week. The property was last on the market in June 2001, quoting €594,000. It has almost trebled in value in under five years.

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LAST year Irish investors snaffled up $410m worth of US properties. However, this is dwarfed by the German spend of $3.9bn and the Brits, who forked out $920m on US properties, according to Real Capital Analytics.

"The Irish made fewer than 20 deals. But the prices of the deals are astounding. They're buying the most expensive properties," says Robert White of Real Capital.

However, the prices Irish investors are paying aren't as high as the vast cheques signed by Japanese players buying up chunks of Manhattan in the Eighties, according to research. This is positive, given that many Japanese investors are still trying to unload real estate they purchased nearly 20 years ago.

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BRITISH property management services firm Erinaceous has signalled its intentions to expand in the Irish market, most likely through a series of acquisitions of smaller rental and letting agencies.

However, these plans may find themselves on the back burner, with the discovery of an alleged big, fat €14m fraud at its Dunlop Hayward subsidiary in London. One employee has been suspended and an office shuttered while an investigation takes place.

Note: the title of this article is taken out of context, and extrapolates from declared repossessions by one of the smaller lenders. It is probable that marketwide repossessions last year were between 20-25 (according to BOIAM forecasts). The actual article is shoddy reporting that has very little basis in firm fact.

the_syco

smccarrick wrote:

However, the prices Irish investors are paying aren't as high as the vast cheques signed by Japanese players buying up chunks of Manhattan in the Eighties, according to research. This is positive, given that many Japanese investors are still trying to unload real estate they purchased nearly 20 years ago.

What year did the Japanese property crash? Then look @ where we're heading. The future looks bleak, at this rate

MorningStar

the_syco wrote:

What year did the Japanese property crash? Then look @ where we're heading. The future looks bleak, at this rate

It was over 20 years ago and hasn't recovered. Just becasue property is a bad investment in the current market doesn't actually mean that much. There are always victims in any normal price cycle. THe problem is for those who think prices can only go up and are over streched either directly on their mortgages from purcahse or those who borrowed on equity.
There really aren't that many people who will get stung directly but it would mean less money in the economy and could possibly cause a recession.

THe SSIAs are likely to have a massive effect not just from the direct money but that amount being saved. Many people who own housese now have a n extra €255 a month or at least a portion of. THis will mean they can take the increase AFAIS.

Plus if the government pulled its finger they could give us better fixed rates similar to the rest of the Europe. I still don't get how a bank can borrow at 3% for 30 years and we pay a fluctuating interest rate as if they are borrowing the money on a monthly basis. Very strange

Captain Trips

MorningStar wrote:

I still don't get how a bank can borrow at 3% for 30 years and we pay a fluctuating interest rate as if they are borrowing the money on a monthly basis. Very strange

Because banking is the world's greatest scam?

Interesting what you said though on people having an extra €255 a month. Never thought of that. Perhaps the gubment had some forsight regarding rate rises and affordability in the Irish market?

The_Conductor

Captain Trips wrote:

Because banking is the world's greatest scam?

Interesting what you said though on people having an extra €255 a month. Never thought of that. Perhaps the gubment had some forsight regarding rate rises and affordability in the Irish market?

Lol.....
On a 400k mortgage in the Dublin area a 1% rate rise would equate to about 340 extra in interest payments per month......
Somehow I don't think this was what the government had in mind when it kick started savings with the SSIA......

Am I the only one who is even slightly gleeful that it looks increasingly likely that the banks are going to get their fingers burnt.......? I spy a future sticky in this forum (or elsewhere on Boards) with advice on what to do when you declare yourself bankrupt....... The government bailed out the banks when they had a run on them (AIB anyone in the mid-80's)....... It'll be nigh impossible to do anything these days though.

MorningStar

Captain Trips wrote:

Because banking is the world's greatest scam?

Interesting what you said though on people having an extra €255 a month. Never thought of that. Perhaps the gubment had some forsight regarding rate rises and affordability in the Irish market?

Well it's in Ireland they can do this not everwhere else, so it's banking is a scam here. The government can change it tomorrow if they want. Instead they rush things like making magic mushrooms illegal after one person kills themself.

It was said that the government were trying to insure teh fsafety of the people with the SSIA and slow down the economy. One way or the other they could have actually managed to do a great job on this. I still won't vote them in as they have lied so much.

bullrunner

MorningStar wrote:

Plus if the government pulled its finger they could give us better fixed rates similar to the rest of the Europe. I still don't get how a bank can borrow at 3% for 30 years and we pay a fluctuating interest rate as if they are borrowing the money on a monthly basis. Very strange

Not strange at all....

If you get a fixed rate (for whatever length of time..usually 1-10 years in europe..but can be up to 30 years in the US) the bank will go into the market and borrow that amount for the fixed period of time. The bank are now committed to this loan for the length of time (they can break the agreement but must pay a penalty..which they pass onto you).

For a variable rate loan the same applies...but only on a month to month basis


The only way the government could affect this is if they went into the mortgage/loan business....which I cant see them doing as it would involve a lot of work/hassle for them (eg getting a retail network, getting regulated etc etc)

MorningStar

bullrunner wrote:

Not strange at all....

If you get a fixed rate (for whatever length of time..usually 1-10 years in europe..but can be up to 30 years in the US) the bank will go into the market and borrow that amount for the fixed period of time. The bank are now committed to this loan for the length of time (they can break the agreement but must pay a penalty..which they pass onto you).

SO that means you can get a fixed rate at a low rate such as we had and have it for 30 years. HEre A fixed rate has an extra charge and you get peanlised for chaging it. Penalties can be worth paying if you get a better rate and often there are refinancing deals which negate the whole thing. This is a lot better than our system where by when you go fixed you pay extra and when you go varibale they make money every time by quickly increase rates on their long term loans.

bullrunner wrote:

The only way the government could affect this is if they went into the mortgage/loan business....which I cant see them doing as it would involve a lot of work/hassle for them (eg getting a retail network, getting regulated etc etc)

My understanding is they can legislate aginst it as they have in other countries. No need to go into the business themselves. Banks make huge profits here becasue of our system they could make less. THey aren't state banks in the US and France providing good mortgage terms. THe banks won't suddenly evacute the country. I am only talking about stablising the property market risk

bullrunner

MorningStar wrote:

SO that means you can get a fixed rate at a low rate such as we had and have it for 30 years. HEre A fixed rate has an extra charge and you get peanlised for chaging it. Penalties can be worth paying if you get a better rate and often there are refinancing deals which negate the whole thing. This is a lot better than our system where by when you go fixed you pay extra and when you go varibale they make money every time by quickly increase rates on their long term loans.

yes something like this....this partly why the US has had to push up int rates because so many people were mortgaging against lower rates....meaning property prices were more affordable which lead to prices rising etc etc.. There is the same prob in the states with penalties for breaking the fixed term...if you break your mortgage before the term ends you have to pay a penalty...so not so many people do.

MorningStar wrote:

My understanding is they can legislate aginst it as they have in other countries. No need to go into the business themselves. Banks make huge profits here becasue of our system they could make less. THey aren't state banks in the US and France providing good mortgage terms. THe banks won't suddenly evacute the country. I am only talking about stablising the property market risk

difficult to do this...it could be construed as restraint of trade for the banking sector...the government could risk a high profile and costly case against them in europe..something they dont really want.

MorningStar

bullrunner wrote:

yes something like this....this partly why the US has had to push up int rates because so many people were mortgaging against lower rates....meaning property prices were more affordable which lead to prices rising etc etc.. There is the same prob in the states with penalties for breaking the fixed term...if you break your mortgage before the term ends you have to pay a penalty...so not so many people do.

Sorry that doesn't make any sense. You can only have a low rate if you were financed and the time of the lower rate. Those buying have to use the current rate. AS I said the penalities were worth paying when the rate you started on is higher than than the current rate. THe peanlty doesn't matter because it is worth the cost.

bullrunner wrote:

difficult to do this...it could be construed as restraint of trade for the banking sector...the government could risk a high profile and costly case against them in europe..something they dont really want.

Again that doesn't make any sense, wouldn't the banks in the Europena countries take their government to court if this was possible?

I am not sure if you just misunderstand the situation or me.

bullrunner

MorningStar wrote:

Sorry that doesn't make any sense. You can only have a low rate if you were financed and the time of the lower rate. Those buying have to use the current rate. AS I said the penalities were worth paying when the rate you started on is higher than than the current rate. THe peanlty doesn't matter because it is worth the cost.

bullrunner wrote:

this partly why the US has had to push up int rates because so many people were mortgaging against lower rates

is this not what you just said???people are getting the low rate beacuse they are arranging finance now (or in the past couple of years) while rates are at historic lows??

MorningStar wrote:

Again that doesn't make any sense, wouldn't the banks in the Europena countries take their government to court if this was possible?

I am not sure if you just misunderstand the situation or me.

i dont know of any banks in europe that are restricted in their trading due to government legislation..hence no court cases.

MorningStar

bullrunner wrote:

is this not what you just said???people are getting the low rate beacuse they are arranging finance now (or in the past couple of years) while rates are at historic lows??.

I didn't think they are historically low in the US. Weren't the lower in 90s? I could be wrong on that. I am pretty sure that was not why the rate was increased one way or the other.

bullrunner wrote:

i dont know of any banks in europe that are restricted in their trading due to government legislation..hence no court cases.

I beleive France, Germany and Spain have legislation to that effect. Ireland is defintly more vunrable than other Euro countries due to the way our mortgages are done. Thats why I suggest we move over closer to the rest of the Euro zone. The indo had piece on this a short while ago.

bullrunner

MorningStar wrote:

I didn't think they are historically low in the US. Weren't the lower in 90s? I could be wrong on that. I am pretty sure that was not why the rate was increased one way or the other.

the rate shortly after 9/11 up to about 6/9 months ago was the lowest it has been since the days of the depression back in the 1930s..rates in the 90s were a lot higher than now (around 8-10%)


The housing market is one of the reasons why both the UK and US central banks have increased rates recently (more so than other parts of the economy would dictate).


while i agree with you that other countries do mortgages differently to us, there is no specific legislations in place making mortgages cheaper than banks would like them to be...competition is the reason why banks have lower rates than here...but ours are slowly coming down.

The main reason that we dont have long term fixed interest rate mortgages is that there has been no appetite for this in the retail market.

MorningStar

bullrunner wrote:

the rate shortly after 9/11 up to about 6/9 months ago was the lowest it has been since the days of the depression back in the 1930s..rates in the 90s were a lot higher than now (around 8-10%)

I stand corrected but I remeber lots of people refinanceing in the 90s when I was ther for better rates was i lower in th 90s than the 80s?

bullrunner wrote:

The housing market is one of the reasons why both the UK and US central banks have increased rates recently (more so than other parts of the economy would dictate).

I agree the housing market is the reason not the refinacing as the UK have the same system we have so it wouldn't apply. We would have put up our own rates if we had control too. So I don't think the refinancing would really be that big a problem and I have never heard of it as a reason for intrest hikes before. COuld be the back door of increased borrowing I guess.

bullrunner wrote:

while i agree with you that other countries do mortgages differently to us, there is no specific legislations in place making mortgages cheaper than banks would like them to be...competition is the reason why banks have lower rates than here...but ours are slowly coming down.

I read it was legislated and there is a call for it to be legislated here. As Euro zone country many banks would come straight in. Banking isn't my thing so I go by what I read inthe paper which isn't great

bullrunner wrote:

The main reason that we dont have long term fixed interest rate mortgages is that there has been no appetite for this in the retail market.

There has been a demand for years it is a lack of will and pressure. It will come in later when rates go up again.