Mortgages.ie - Mortgages and Mortgage Protection Insurance

What are the implications of the current turmoil in Ireland?

The simple answer is that we do not know .Quietly most of us believed that we would not go the way of Greece.The IMF was really only for basket cases.

I am not sure why we all got too excited about the Government trying to hold off on the announcement.It would appear to make sense to have some discussions in advance of officially knocking on the door of the IMF.That is history now and only big difference between us and other IMF bailouts is that it creates an unholy mess if we fail.We will not be allowed to fail and does this mean we have some bargaining power?Looks like the best we can hope for is capitalising some debt into equity in our banks.

At the moment everything is up in the air.

We do not even know where all the money is going,why we are borrowing it and how are we going to pay it back.

In the end the cold reality is that this is a complete disaster for Ireland.

Probable outcomes on the downside include the following :

• A real reduction in the standard of living through lower wages and increased taxation
• Massive damage to our international reputation
• Pressure for cuts on the most vunerable in society
• Reduction in foreign direct investment into the country
• A discredited political system
• More losses at banks
• Huge loss of credibility and power in Europe
• Extreme pressure on public finances in order to ensure sums borrowed can be repaid,(It is very difficult ,almost impossible for an entity which is currently losing money to pay for the sins of the past) .It would be very helpful to see a projected cash flow for how we are going to pay all this money back.Is there any point in borrowing any more if we just can't pay it back?

The bail out is a devastating blow for this country.

The presence of the IMF is there to ensure that reality as opposed to politics rules the day.And you take it that there is absolutely no messing around when the IMF are involved.

Housing

From the narrow perspective of the housing market we expect to see continued downward pressure on house prices.The downward pressure exists currently and will continue for a number of reasons including:

• Reduction in sanction amount by lenders
• Reduction in approved customer levels due to more difficult lending criteria
• Economic uncertainty
• Prospect for rising rates
• Arrival of IMF

The one factor leading to any form of price stabilization is demand.Demand for properties in some areas is strong and such demand will limit the price downside.In general it is now reasonable to question any price that is not 50% off its peak,This is frightening for those who bought at the peak and ironically great news for current buyers.

We would like to see transparency in the house buying system so that estate agents are not spinning yarns about offers on the table from other interested parties.False statements by agents in this regard should be an offense. We need to work to an open market which also requires sellers to state a price at which they will sell a house.

We see the housing market tipping along the floor for a while yet .The new year should see more developments completed which will bring some activity but and we expect prices in these developments to be very low compared to historic values.

The scaling back of mortgage interest relief will help the market next year with buyers likely to be attracted by a combination of 50% house price reductions,full mortgage interest relief until 2017 and the possibility of accessing low cost medium term fixed rate mortgages.

We are concerned at the lack of demand for fixed rate mortgages.One can understand tracker rate mortgage holders not wanting to move but there are many other borrowers out there who should fix now and lenders should be encouraging their clients to consider a fixed option and pricing such options competitively.

Any good news?

There is the possibility that some good may come out of the mess we are in:

• Less pussy footing around and faster decisions
• Lower wages will create new jobs
• Lower welfare payments( excluding vunerable hopefully) will help jobs
• Hopefully stupid capital projects will be scrapped.
• We will be forced into action to create jobs in tourism ,food and export oriented services
• We would expect to see massive cut backs in current government expenditure
• Closure of quangos

Banks

In terms of the banks, the continuing worry is the uncertainty over provision figures.

In our view there is a strong case for having an independent provisioning system whereby an independent body assesses the provisions on a quarterly basis.This system would be independent of management,and would report it's figures both to the Regulator and Management.Funding for such a move would be provided by the investor compensation scheme or something similar .

• We do not know the new shape of our banks.In time we would expect to see both major banks taken out by a European or possibly American bank with the Country remaining as a minority shareholder.
• We drastically need a system that allows competition between lenders,
• There is a huge need to ensure competition in the business lending area and Nib and Rabo need to be encouraged to enter this space.Ulster bank are well placed in this area and we need at least 5 active players to ensure adequate supply and price competition.
• The potential merger of ptsb and EBS does not solve to many problems and we would like to see a tie in with a UK bank here also. A merger between ptsb EBS and Ulster would certainly have the look a of a third force!