Are Tracker Mortgages dying out?

Permanent TSB today announced that they are withdrawing Tracker Mortgage guarantees in the New Year. For those who don't know, a Tracker Mortgage is one which is at a variable rate, but the margin over the European Central Bank (ECB) rate is fixed for the life of the loan. Permanent TSB's news now means that they are only guaranteeing the margin for one year. Effectively this is no longer a Tracker Mortgage in the commonly accepted sense.

The stated reason is the cost of funds. I wonder if other lenders will follow suit. If you've been considering switching to an attractive tracker mortgage deal, maybe now is the time.

Merry Christmas from the ECB

Looks like borrowers can breathe a brief sigh of relief in the run-up to Christmas, following today's ECB meeting. At the meeting, the ECB decided to leave interest rates alone for November and gave no hints that they would be increasing rates in December.

Interpreting the hidden meanings of ECB President, Jean-Claude Trichet's speeches has become something of a science in recent years. Imminent rate increases have been flagged by use of the words "strong vigilance" in the preceding month. There was no mention of "strong vigilance" today, which would seem to indicate no rate rise in December.

Are lenders to be punished for greed?

There has been some speculation in the media recently that solicitor Michael Lynn or companies controlled by him borrowed €26 million this year alone and there have been suggestions that some of these transactions may not have had full security for the respective lenders.

How is it that small borrowers can be made jump through hoops by lenders when they want to borrow relatively modest sums in the hundreds of thousands to buy homes, while this man apparently got access to €26 million?

It wouldn't possibly be that the size of Michael Lynn's borrowing and the resulting profits to me made could have dazzled the normally cautious bankers? Time will tell.

Here's one of the many articles on this topic.

A little less conversation on pensions please

The Government's long-awaited Green Paper on pensions was finally published last week, having been postponed since March and September. You can see it here.

It's frankly disappointing that there's not one hard proposal in it - just an invitation for submissions and debate. This has been done before. Check out this link from the Pensions Board about the National Pensions Policy Initiative. The objective of the Initiative was to facilitate national debate on how to achieve a fully developed national pension system and to formulate a strategy and make recommendations for actions needed to achieve this system. It was started in October 1996.

After eleven years, can we have a little less conversaion and a little more action please?

I've expanded on this theme in the Sunday Business Post here.

All this uncertainty is creating a property blight

I read that Michael McDowell has now promised to abolish Stamp Duty for First Time Buyers and bring down the Duty for other buyers by charging the higher rates only in respect of the portion of the price that exceeds the relevant limit.

For example - there's a Stamp Duty threshold limit at €381,000. Under current rules, anyone who buys for €380,000 pays the lower rate on the whole purchase price. Anyone who buys for €382,000 pays the higher rate on the WHOLE €382,000. Under the PD proposals only the €1,000 excess over the limit would be charged at the higher rate, with the remaining €381,000 payable at the lower. I use this example just to illustrate the principle - the thresholds may well be changed under a new administration also.

Michael has also pledged that if the PDs are returned to Government the Stamp Duty reforms will be brought in before the Summer Recess, rather than at some unspecified point in the future.

This is all very well. It seems Stamp Duty has become a major election issue for all parties. So it's beginning to look like there will be reforms no matter who gets elected.

BUT

Very few people are going to buy a house between now and the election. Who wants to be the poor sap who pays a big chunk of Stamp Duty, only to hear that a few days later it was abolished for his size of house?

Bertie - please call the election now and let's get it over with.

Mortgage business quieter this year...good!

I read in a recent article by Davys that mortgage brokers are reporting a slower year than previous boom years. The article itself can be read here. http://www.davydirect.ie/other/pubarticles/mortgage20070226.pdf

While obviously not wishing hard times on any of my financial services colleagues, I believe this to be a good thing for the consumer. The previous boom years in the mortgage market had meant that customer service had reached all-time lows as lenders struggled to keep up with the volumes of business coming in. Furthermore, there was less pressure on lenders to compete with each other.

If there's less business to go around, hoopefully lenders will be better able to service it. In addition, expect plenty of competition for slices of the pie.

Changes to Exit Tax for policies sold after 1/1/2001

Irish tax is payable on any investment returns made on a life insurance policy. Tax is paid at the rate which applies for customers of life insurance companies (currently 23%). This tax rate is equal to the standard rate of income tax (currently 20%) plus 3%. Where the charge applies, the life insurance company deducts any tax due from the value of the policyholder’s investment and pays it to the Irish Revenue. The life insurance company then pays the policyholder the after tax amount.

So what has changed?

Before the new tax rules came into effect, Irish tax was payable on investment returns:
· if the policyholder made a withdrawal (full or partial) from their investment;
· if the policyholder took an income from their investment;
· if the death benefit was paid;
· if the policyholder transferred all or part of their investment to somebody else (although there were some exceptions to this).

After the new rules came into effect, Irish tax is now payable in all of the above circumstances and on every eighth anniversary of the policy.

This means that, from now on, tax will automatically be deducted from the value of the policy on each eighth anniversary. The tax paid on each eighth anniversary will reduce the amount invested in the fund from that date onwards.

Where tax is deducted from the policyholder’s fund on each eighth anniversary, this tax can be offset against any tax that is payable on a subsequent full encashment. Therefore if the policyholder decided to cash in their investment on, say, the ninth anniversary then the amount of tax due, based on investment returns over the nine years, would be reduced by the amount of tax they already automatically paid on the eighth anniversary.

The new rules affect all categories of life insurance, including savings, investment and linked protection.

These changes were brought into law as part of the 2006 Finance Act. They apply to all policies sold on or after January 1st 2001. This means that the first actual deduction of tax won’t take place until January 1st 2009.

Stage Payments on Housing Estates to be abolished

Junior environment minister Noel Ahern has announced that the practice of stage payments in housing estates is to be ended. Stage payments are common practice for once-off self-build houses, i.e. you're building a house on your own site and instead of getting your mortgage cheque all at once you get it in stages as work progresses on the build.

But in certain parts of the country (rarely in Dublin for some reason) developers building housing estates were asking for stage payments from purchasers, so you'd end up paying a partial mortgage before your house was near completion. This practice is now being abolished where contracts are entered into from June 30th 2007.

Stage payments for people building their own homes will not be affected.

This is good news - it always struck me as cheeky that a developer could end up getting interest-free development finance for a housing estate - it was the purchasers who paid interest on the stage payments.

Switch your equity SSIA to cash if you're getting out soon

The vast majority of SSIAs will be maturing in April 2007, the final month of the scheme. A portion of these (admittedly not a huge portion) are equity-based Managed Fund SSIAs. If too many of these equity-based SSIAs are actually cashed in at the same time, it may cause a dip in the funds or cause the fund manager to impose a Market Value Adjuster (MVA) - a sort of penalty for cashing in at that point. Some SSIA providers have already done so.

To avoid this possibility, I'd recommend that equity-based SSIA holders who intend to cash in during April 2007 should ask their provider if they can switch funds now to cash to avoid such a penalty. You may miss out on any fund growth during the final months, but you'll certainly miss the penalty.

Of course the alternative is to defer cashing in your SSIA for a few months.

At last a mortgage price war

AIB yesterday announced cuts in their tracker mortgage rates, with rates as low as ECB + 0.45% for the first year and ECB + 0.6% for all subsequent years. This is seen as direct competition for National Irish Bank's recent competitive tracker offering.

As National Irish Bank don't distribute through mortgage brokers, the other lenders have to date held off cutting rates to see what effect on the market the NIB move would have. But AIB do distribute their mortgages through brokers, so I'd expect that AIB have started a rate war, as mortgage brokers are likely to be far less prone to inertia than the general public who National Irish Bank target.

Roll on some more rate cuts in the next few weeks...

We really are independent mortgage brokers

First of all - a belated Happy New Year to all readers, friends and clients.

Just been doing a review of the mortgage end of the business for 2006.

We have always been keen to illustrate the advantage of going to a mortgage broker is that you'll get a choice of lenders, at no extra cost to yourself. To prove the point, I'm happy to publish that last year we actually placed business with seven different lenders and no one lender got more than 27% of our overall business.

I would be wary of anyone calling themselves a mortgage broker who actually only places business with one or two lenders or who places a majority of all their business with one lender. You'd have to question if they were really independent, unless there was an unusual commercial reason for this.