Pension tax cuts in the Budget?

Everyone has their predictions about what will happen in next month's Mini-Budget, which is likely to be more juggernaut than Mini. Some possibilities are discussed in today's Irish Independent here.

The Minister needs to tread very carefully if considering reductions in tax relief available to those seeking to fund their pensions. Confidence in pension funds is at a low point at the moment, given the recent downward trend in fund values. This confidence will inevitably return when values start rising again. But if the Minister picks this point in time to announce cuts in tax reliefs, it could cause many people to simply scrap their pension plans altogether. This, of course, would be a bad thing for people's long-term futures and would render wasted all the millions spent on pensions awareness campaigns of recent times.

That said, tax savings are inevitably required. Here's one for the Government to consider - introduce a low rate of Capital Gains Tax and/or tax on dividend or rental income on pensions. Currently, neither tax exists within pension funds. At a rough estimate, funds under management in Ireland total over €55 billion and that's after all the recent falls. Even if there is a recovery of 5%, that would add €2.75 billion. A tax of 10% on gains alone would add €275 million to the Exchequer coffers, while still leaving pensions an attractive form of investment.

I'll only take 1% commission on tax savings for this idea.

Permanent TSB service levels

I hear that Permanent TSB are currently processing mortgage applications with a delay of about sixteen days. In other words, if you send something to them in connection with a mortgage application today, it may well be the first or second week of April before it gets looked at.

If I assume that this is not because the property boom has suddenly restarted while I was sleeping, it's presumably because they cut staff numbers.

But in a time when there's less mortgage business to go around, wouldn't you think that it would make more sense to improve service to help win business, rather than go the other way?

New mortgage rates from AIB

AIB announced new mortgage rates today - Standard Variable down to 2.75% (APR 2.79%). Fixed for two years at 2.8% (APR 2.84%) or three years at 3.1% (APR 3.14%). Other fixed rate options available but those are the ones that caught my eye.

Ulster Bank and National Irish Bank withold some of the ECB rate cut

Ulster Bank and National Irish Bank have announced that they are only passing on 0.25% of the European Central Bank's 0.5% rate cut announced this week. This applies to their Standard Variable Rate products only - Tracker Variable customers will get the full rate cut, but only because they have a contract that compels the bank to do so.

This is bizarre logic - if you've got a Standard Variable Rate mortgage with Ulster Bank for example, this rate cut may bring your rate down to 4.69%. Depending on the value of your home, you could get a variable rate from AIB from 2.75%. That's a huge difference and if your mortgage is anything more than about €200,000 the savings on interest would recoup the cost of switching in under a year.

So what exactly are Ulster Bank and National Irish Bank trying to achieve? Encourage their Standard Variable Rate customers to switch lenders? So that all they'll be left with are those who can't switch because they no longer qualify for the size of mortgage, have a bad credit rating or are in negative equity?

Answers on a postcard please...

Repossessions still at a very low level

Guess how many houses were repossessed by the banks in 2008? One in every hundred mortgages? One in every thousand? Nope - 96 in total, or one in every 10,000 mortgages issued, according to figures released yesterday by the Irish Banking Federation.

While that's of cold comfort to you if you happen to be one of the 96, it does display that actual levels of repossessions in this country are low. The rate in the UK is 35 times higher.

Ireland's first Euribor tracker mortgage

Leeds Building Society have announced a new tracker mortgage product which tracks Euribor rather than the European Central Bank (ECB) base rate so beloved of previous tracker mortgages, which are now rarer than hen's teeth.

The Euribor rate is more representative of the rate at which banks lend to each other. The ECB rate and the Euribor rate used to follow each other closely. Then came the credit crunch - the Euribor rate went sky-high while the ECB rate didn't. So banks quickly withdrew ECB trackers from the market because they were borrowing at Euribor but their customers were only paying back at a small margin over ECB. In effect, they were losing money on a lot of their more competitive ECB tracker mortgages.

This new Euribor tracker rate takes that unsavoury possibility away for the banks. It's good for customers in that it means they aren't at the mercy of bank management who decide not to pass on rate cuts. But it's a risky punt too because the Euribor rate has shown that it can spike upwards from time to time which would be painful if your mortgage tracks it.

In any event, the Leeds offering is expensive at Euribor + 3% but then Leeds aren't targetting mass-market business. However, it's an interesting start which will hopefully be picked up on by other lenders. Euribor tracker with a ceiling anyone?

I'm taking all the credit for the idea, by the way...I mooted the possibility of a Euribor tracker in The Sunday Tribune here back in December. Royalty cheques in the post to the usual address, please, Leeds!