Tracker mortgage holders wondering if a fourth cut to the current ECB rate of 0.75% is to be announced this Thursday
With the ECB council meeting this Thursday, tracker mortgage holders are not likely to get another cut to the current interest rate of 0.75%. Lack of optimism for a further trimming to the base Eurozone interest rate is reflected by results from a Reuters poll. Few of Europe’s leading economists believe that the ECB rate will be reduced to 0.5% following the ECB’s meeting taking place later this week.
Speculation as to whether a fresh rate cut would be on the cards this week has been fuelled by the continuing stagnation in the wider Eurozone economy. Although it is probable that a further interest rate cut will not be announced this year, there is a good chance of having one in the first quarter of 2013 as the Eurozone economy still struggles to return to growth.Mortgage holders with tracker arrangements instantly benefit from any drop in the ECB rate.
Indeed, each 0.25% reduction of the interest rate takes €15 per €100,000 borrowed off monthly repayments on a tracker. This year alone, monthly repayments for tracker mortgages on every €100,000 have fallen by €45. However, variable mortgage holders have not been as fortunate. To the contrary, many banks have actually hiked variable interest rates in order to reduce the loss-making impact of having to service their tracker portfolios.
Major lenders, AIB and Bank of Ireland, have added a half a percent to their variable interest rates in the past few months. Calls for the ECB rate to be slashed down again have been bolstered by a report released by the Organisation for Economic Cooperation and Development (OECD), stressing the need to relieve the pressure on Eurozone countries to get out of the economic doldrums.
While we may not witness a fourth cut to the current ECB rate this calendar year, signals suggest that households on trackers may be in for some good news early next year.
October’s mortgage data shows increase in loan approvals
The number of mortgages approved by banks during October went up by around 27 percent when compared to the same month last year. Lenders participating in an Irish Banking Federation (IBF) survey approved 1,677 loans for the calendar month of October. This figure represents a 26.9% improvement on the rate of approvals recorded in October 2011 as well as a rise of just over 10% in the amount of mortgages approved this September.
Data was complied from nine lenders who participated in the IBF survey: AIB, Bank of Ireland, EBS, Haven, ICS Building Society,Ulster Bank, Permanent TSB, KBC and Danske Bank. However, it is important to note that the IBF classified an approval as an offer made to an applicant to avail of sufficient credit to purchase their desired property and does not necessary assume that the loan sum had been drawn down.
To put simply, this means that an applicant could have been successful in their loan application but chose not go ahead with drawing down the money. More good news relating to mortgage activity earlier releases showed a first annualized increase in the number of mortgages being drawn down since the boom’s peak in 2006. While this recent performance is encouraging, there is doubt that growth can be sustained in 2013 and beyond.
Given that the interest relief scheme for first time buyers is due to be abolished at the end of 2012, there is no way to see the effect its absence will have on the demand for people to seek mortgage approval.
Since its inception in June, only one couple has availed of mortgage to rent scheme
A High Court judge has raised concerns about the effectiveness of the mortgage to rent scheme as a means to help those who cannot repay their mortgages. The scheme allows low earning homeowners to stay in their homes and pay rent to a housing agency who buys the home directly from the lender at the current market rate. The idea sounds like a good compromise for anyone having to resort to it.
People can stay in their home and retain the ‘status quo’, but would no longer legally own the property. However, any transfer of ownership through would be done under the strictest of confidence. This means that anyone availing of this scheme would not have to tell friends or neighbours that it ever happened. What is surprising, therefore, is the lack of applicants availing of this debt relief option.
Since the mortgage to rent scheme was introduced this June by Minister of State for Housing, Mr. Jan O’Sullivan, it is alleged only one couple have been accepted. This has raised criticism from Ms. Justice Elizabeth Dunne who questioned the viability of using the mortgage to rent scheme if few will benefit from it and would ‘give false hope’ to distressed mortgage holders.
Indeed, she said that many borrowers have found their application efforts fruitless with many giving up adjourning cases pending successful acceptance onto the mortgage to rent scheme. On the other hand, the Department of the Environment revealed that, despite the scheme only claiming one completed case, the process is complex in nature and that more cases will be decided upon in due course.
Glimmer of hope for mortgage debt to be written down if lenders sell on debt to other companies
Thousands of Ireland’s households who took out mortgages that have become an insurmountable burden of debt could have some good news coming their way – but it depends on the lender from whom you borrowed. Lenders are looking to sell off its mortgage and other loan books to other debt collection companies. Generally, passing on debt to such companies would most likely result in write off of debts as loan portfolios are normally sold off for a fraction of their value.
Bank of Scotland (Ireland), who pulled out of the home loan market two years ago, are one of these lenders looking for a buyer to take over servicing some 80,000 mortgages it gave out to people while it operated in Ireland. And they are not the only bank looking to move bad debt off its balance sheets. This year, Australian company Pepper acquired GE Money’s mortgages and has already begun writing off debt from some loans.
Permanent TSB is believed to have made an agreement with Germany’s Deutsche Bank for it to take over its personal loans division for a fee in the region of €287 million. For experts surveying the mortgage crisis, the sale of loans from one entity to another offers the best hope possible for those mired in negative equity and failing to keep on top of repayments.
This is thanks to the fact that the company taking on any bad loan collection is able to purchase it at heavily discounted rates, giving the new company wide scope to wipe off portions of debt and still make a profit. Case in point – a couple was offer a debt write-off of €110,000 from the mortgage lender, Pepper, on the provision that they sold the house.
Bank of Ireland announce mortgage arrears strategy is working for those who need it
One of Ireland’s pillar banks, Bank of Ireland, is starting to see positive results with its efforts to curb the ever growing problem of mortgage arrears. In a recent statement released by BOI, it has entered in a restructuring scheme to lower monthly repayments for distressed mortgage holders to more sustainable levels. Out of its entire customer base helped so far, 86 percent are meeting the newly agreed terms.
It also adds that the rate at which mortgage arrears accumulate is continuing to decrease from the heightened levels seen earlier this year. Even though this seems good news for its mortgage book, it stressed cautious optimism going forward as further improvements are contingent on its performance in residential and commercial markets. Outside of mortgages, other financial services are serving BOI well.
In particular, the decreased cost in servicing deposit accounts thanks to ECB rate drops as well as securing an extra €2 billion in deposits since June are widening its net interest margin. Furthermore, its plan to phase out its commitment to the Bank Guarantee Scheme is on schedule. Total liabilities held under this scheme have gone down considerably to the tune of €8 billion since this June.
The bank state it is meeting its overall cost reduction targets. However, time will tell if this translates into continued improvements for both its mortgage arrears book and improving its new business book.
Property industry group calling for mortgage tax relief extension
The group, Property Industry Ireland (PII), have added their support to prolong the availability of the mortgage tax relief scheme for those buying homes beyond the end of the year. PII, who represent various professions involved in the property industry, are asking the Government to rethink their decision to get rid of the incentive for new home buyers on the 31st December 2012.
It says that keeping the scheme going for at least another year could support vital growth to a market they believe is starting to show signs of recovery. With up to 25% tax relief available for first time buyers, it is clear to see why organisations like PII are campaigning for the relief to be extended. Indeed, if a couple were to draw down a €200,000 mortgage before the year end, they would receive a relief deduction of more than €2,000 for the whole of next year.
Despite all these calls, the Government remains firm on its intent to remove mortgage interest relief by the end of 2012 and that time is running out for potential homeowners to avail of an ‘offer of a lifetime’. Indeed, this message has been consistently reinforced by Finance Minister, Michael Noonan, who said that the Government won’t back down on getting rid of the incentive as planned.
What size deposit is required to get approved for a mortgage?
Many mortgage applicants ask about how much money they need to have in the form of a deposit in order to be approved. The answer to this questions depends largely on the type of mortgage product being sought by the applicant. At the moment, first time buyers and those seeking to upgrade their home need need a minimum deposit equalling 8% of the purchase price of the property being bought.
Consider the simple example of a first time buyer wishing to seek finance to buy a house for €100,000. For the applicant to be successful in getting the loan, a deposit of €8,000 (€100,000 x 8%) is necessary to borrow the remaining 92% of the property’s value. While most lenders are happy to accept an 8% deposit, other banks may insist you offer a higher deposit (sometimes 10-12%) as a condition to qualify for a loan.
Outside of the deposit, there are other one-off costs that have to be immediately paid when entering a mortgage agreement. For example, a solicitor is needed to carry out all legal aspects of buying a house which incurs a fee for their work. Stamp duty must also be paid. The amount charged on stamp duty is 1% of the property’s value up to €1,000,000 and 2% on any balance exceeding the million Euro mark.
Finally, unless you are lucky to get a house furnished to your liking before moving in, you will have to buy a range of things such as chairs, tables, beds, electrical appliances etc. so you can comfortably live in your new home. Between the deposit needed and other one-off charges, it all seems much. But our mortgage advisors can show how to get your finances in top shape and have you prepared for these costs when they occur.
Mortgage write offs will form part of AIB’s plans to alleviate mortgage arrears
One of Ireland’s main mortgage lenders, Allied Irish Bank, has revealed it will write off debt as a measure to put affordability first for all its borrowers. The announcement for the pillar bank to engage in selective debt reductions was recently made its chief executive, David Duffy. However, widespread debt forgiveness has been ruled out as a solution as Mr. Duffy warns against the moral implications of wiping off large sums off outstanding loans.
At the forefront of its strategy to deal with its distressed mortgage book, it will employ what it calls the “principle of affordability” with its 33,000 customers who find themselves in trouble with keeping up with monthly repayments with write offs being considered in some cases. Despite wider calls for lenders to implement blanket debt forgiveness, it will not resort to this and mainly cites insufficient capital as the reason why.
In other news, the cost to the taxpayer to have Anglo Irish Bank wound down has been revised downwards to around €25 billion instead of the original figure which was conservatively estimated at up to €34 billion. This may be good news if taken at face value, but the Irish Bank Resolution Corporation’s (IBRC) chairman, Alan Dukes, clarified that the revised cost is dependent on numerous factors.
Savings to Government coffers rely heavily on a stabilisation of the Irish and British property markets as well as the Eurozone, a renegotiation on the cost borne by the promissory notes and Ireland recording positive economic growth. Mr. Dukes also commented on criticism from Fiona Muldoon, a leading regulator working for the Central Bank, that the banks are not being decisive with the arrears crisis.
While acknowledging her comments regarding the speed at which banks were reacting to the growing problem of mortgage holders not being able to keep up on repayments, he stresses the importance for any solution rolled out to work. With other banks facing an equally massive challenge of getting to grips with mortgage debts, we could be hearing more of the words ‘write off’ in the near future.
Beat the interest relief deadline with Mortgage Advice
The mortgage interest relief scheme currently offered to first time buyers will finish up on the 31st December 2012. However, those who complete the mortgage process before the end of the year will get up to 25% relief on the tax paid on monthly repayments for the first two years. After this period, the amount of relief received will continually diminish until the 31st December 2017 when the scheme will be fully abolished.
Extended during last year’s Budget by Finance Minister, Michael Noonan, to bolster interest in the first time buyer market, time is quickly running out for those seeking approval before 2013. We recommend anyone interested in taking advantage of the tax relief benefits to get in touch with our highly qualified advisors who will work with you to make sure you get you approved on time.
And the benefit to your pocket are substantial. A couple drawing down a mortgage of €180,000 borrowed over 35 years would save €150 a month on repayments with a variable interest rate of 4.24% for the first two years if they are approved before the interest relief deadline. If you want the best mortgage deal, talk to our advisors straight away by calling 1890 746 759 or apply online for a member of staff to call you back to begin the process.
NAMA’s 80:20 scheme to protect against negative equity extended
The 80:20 scheme administered by NAMA protecting house buyers against the effects of negative equity is to be rolled out on a more widespread basis. Aiming to reignite activity in the property market, the initiative shields purchasers against losses of up to 20% in the value of any dwelling bought under the scheme for five years following transfer of ownership.
The initiative was initially piloted on 12 developments in the counties of Dublin, Meath and Cork. Over time, the bad bank has made more properties available to prospective buyers on the scheme. Since May 2012, 41 properties from 115 have been either sold or reached in sale agreed stage. Following NAMA’s announcement, a further 180 homes will be made available in nine more counties, among them Kildare, Galway and Limerick.
Priced from €100,000, this latest batch of homes invariably differ in size. From humble two beds to the more stately five beds, there seems to be plenty of choice to suit a vast range of budgets with the comfort of a significant buffer against negative equity. As concerns over further drops in house values are still on the minds of the wider public, NAMA report a positive reception of their initiative from those eyeing up a bargain.
Three banks have been lined up to finance purchases under the scheme: Bank of Ireland, EBS and Permanent TSB. To be eligible to get a mortgage, an applicant must have a deposit of at least 10% as well as satisfying terms and conditions. If successful, the lender gives 80% of the purchase price initially and, if the value of the property has not dropped within the first five years, the mortgage holder must then pay back the remaining amount as per the conditions of the 80:20 scheme set out by NAMA.