Wednesday, 13 December 2006

Dodgy mortgage brokers and estate agents

I watched the Prime Time Investigates programme on Monday night with interest. (You can download it from RTE - requires RealPlayer.)

Sadly, I can't deny that some of the practices that were mentioned do occur, specifically the ones referring to mortgage brokers illegally sharing confidential information with estate agents to whom they are affiliated. I had personal experience of being introduced to a mortgage broker at an industry Christmas lunch last year who was proudly able to announce the address of a property I was buying at the time, in front of all present. It wasn't any great secret that I was buying the property, but the principle was that I hadn't given any consent for the estate agent to pass my details over to the mortgage broker.

Obviously the issues raised in the programme were far more serious - the mortgage broker passes back confidential financial information about the client to the estate agent who then knows what the budget of the potential purchaser is, and tailors bidding to suit.

As is so often the case, the programme will probably do damage to the image of the mortgage broking industry in general even though any mortgage brokers of my acquaintance are honest professionals who are doing an excellent job for their clients.

I would have the following advice for any potential purchaser:

  • Don't use a mortgage broker or solicitor who is offered to you by the property developer or estate agent. Choose each ideally from personal recommendation. Most firms are professional enough to keep a distance from each other, but as the programme proved, there is the potential for conflict of interest.

  • When you're dealing with a mortgage broker, ask initially which lenders the broker represents. You should be looking for a list of at least half a dozen as anything less doesn't really offer a wide enough choice.

  • When a mortgage product is recommended, don't be afraid to ask why that product is better for your needs than that of another lender.

  • For all your mortgage needs, come to Ferguson & Associates! ;-)

Wednesday, 6 December 2006

Budget changes to Mortgage Interest Relief

In today's Budget, Brian Cowen announced increases to Tax Relief at Source (TRS) for mortgage customers, with the biggest increases for First Time Buyers.

The current annual ceiling on the amount of interest that can be allowed on a mortgage is being doubled for first-time buyers from €4,000/€8,000 single/married to €8,000/€16,000 single/married. The increased relief will be available to all first-time buyers who are in the first seven years of their mortgage.

The ceiling for non-first-time buyers is also being increased, from €2,540/€5,080 single/married to €3,000/€6,000 single/married.

For a couple buying their first home, the new €16,000 limit means that their maximum allowable relief is €16,000 at 20% or €266.66 per month jointly in a full tax year, provided that they pay at least €16,000 in interest in that year. Assuming a sample interest rate of 4.5%, their mortgage would need to be in excess of ~€350,000 to qualify for maximum relief.

The increase to €6,000 for a married couple on an existing mortgage (i.e. not First Time Buyers) is less generous - in a full year a couple paying at least €6,000 in interest will now get €100.00 per month TRS jointly, up from €84.66 per month.

Budget changes to Stamp Duty on mortgage deeds

Brian Cowen today announced that he is abolishing Stamp Duty on mortgage deeds with effect from tomorrow, 7/12/2006. This was a Stamp Duty that was payable on all mortgages above €254,000 at a rate of 0.1% of the mortgage amount, with a maximum amount of €635.00. It was collected by the solicitor. So someone obtaining a €400,000 mortgage or re-mortgage used to have to pay €400.00 Stamp Duty on the mortgage deed.

Now that's abolished. Good news for house buyers and re-mortgagers.

Monday, 4 December 2006

Extension to SSIA into pension scheme

The Revenue have extended the deadline date for people who want to re-invest some of their SSIA in a pension and avail of the special incentive scheme. The extension applies to those whose SSIAs matured in May, June, July or August 2006 - all such people have until 31st December 2006 to avail of the new scheme. Anyone with an SSIA that matures from September 2006 onwards has three months in which to avail of the scheme.

Under this scheme, a qualifying applicant can re-invest up to €7,500.00 of their SSIA maturity into a pension plan and the Government will top it up by 1/3 to a maximum of €2,500.00. Certain conditions apply and these are detailed on the Revenue leaflet available on the Revenue website here.

We have some interesting deals available to those who want to avail of this incentive. Ask for details.

Tuesday, 28 November 2006

Mandatory pensions

I was at an interesting pensions workshop last week, hosted by Eagle Star with a handful of other brokers. The topic was mandatory pensions and it's likely to be something we'll all be hearing plenty more of.

Hard mandatory pensions are one option - where everyone simply has no choice but to be part of a pension plan of some sort. I don't see this as a viable option. Apart from anything else, it's opponents would easily torpedo the idea as being simply an increase in taxation. If the Government is introducing legislation that says that you and/or your employer must hand over extra money, even if it's for your own future benefit, it would be hard to claim it wasn't a form of tax. If it walks like a duck...

Clearly, soft mandatory pensions are a preferable solution. The idea here is that everybody is automatically enrolled in a pension scheme, but they then can choose to opt out. I reckon that would be a huge success. Inertia is still rife in the Irish financial services world - why else would many people still be paying uncompetitive Standard Variable mortgage rates when they can switch to better rates for free? This inertia would be to the advantage of Soft mandatory pensions - many people would simply not bother opting out.

It would also have the advantage that if someone is automatically enrolled in a pension scheme at the start of their employment, they won't get used to having the extra money. As we all know, if you never had it, you won't miss it.

I would say that it would be important that the Government introduces strict controls on the type of pension scheme that would be available under a Soft mandatory system. It would be an embarrassment if people were automatically enrolled in a pension scheme by Government decree and the scheme they were enrolled in turned out to be a rip-off. As such, Standard PRSAs would seem tailor-made for the job - with statutory caps on charges and a Default Investment Strategy for those who don't want (or don't have sufficient information) to choose their own funds.

Brendan Johnson, Pensions Director of Eagle Star, made an interesting point about ways to increase pension coverage. It wouldn't be sufficient to simply introduce a tax credit system and hope that the simpler structure alone would encourage more people to sign up, although it would certainly be a help. Many people believe the current system of tax relief on pensions is too complicated and should be replaced by a SSIA-style creidt system, where people can see clearly the benefit of the tax and PRSI relief as a top-up to their pension fund. But although the SSIA scheme is touted as proof that such a simple scheme would work, approximately half of all SSIAs were taken out in the final month of the scheme. What does that tell us? That all these people would never have gotten aroun to taking out a SSIA if it wasn't for the deadline, regardless of how attractive or simple it was.

Canada Life improvement to ARF & AMRF

I see Canada Life have made a few tweaks to the charging structure of their Approved Retirement Fund (ARF) and Approved Minimum Retirement Fund (AMRF) contracts, making them more attractive from a charging perspective. The main improvements are for funds of €150,000 or more.

Monday, 27 November 2006

Welcome to my blog

Welcome to the first entry in my blog. I'm a somewhat reluctant entrant to the world of blogging, as I'm still bothered by the notion that blogs are only for people with an inflated sense of their own importance. In other words, people who like the sound of their own voice and believe that other people will actually want to read their opinions and musings.

Still, I'll try to keep the ego in check and will try to keep the entries down to snippets of general interest.