Jump to content
House Price Crash Forum
Sign in to follow this  
Smarter than the average bear!

Things Could Get Messy In Ireland

Recommended Posts

RTE News

"The Ulster Bank's Outlook also says that euro zone interest rates could catch up with the Bank of England's monetary policy. He says that the ECB could paradoxically be forced to tighten euro interest rates, even if oil prices rise further and the euro zone economy fails. "

Ireland is number one in my book for property collapse.

It may take many years, but that's just more years of pain.

The Irish economy is going to be a basket case.

Share this post


Link to post
Share on other sites

the property boom in ireland has been even more ferocious than in the uk. it was fuelled by the celtic tiger which brought all the recent emigrants home to earn big money, and the very low interest rates in the eurozone. anybody who has been n ireland lately can testify to the size of the houses going up in the countryside. but it is a bubble about to burst. the celtic tiger is faltering, and never involved more than half of the population anyhow (the richer half), and people are mortgaged up to the eyes. everything is "on the drip" ie credit. when the interest rates go up, there will be a major catastrophe for the poorer section. the rich will take over their property, at reposession prices. Ireland is not as law abiding as the UK. there may be civil unrest.

Share this post


Link to post
Share on other sites
the property boom in ireland has been even more ferocious than in the uk. it was fuelled by the celtic tiger which brought all the recent emigrants home to earn big money, and the very low interest rates in the eurozone. anybody who has been n ireland lately can testify to the size of the houses going up in the countryside. but it is a bubble about to burst. the celtic tiger is faltering, and never involved more than half of the population anyhow (the richer half), and people are mortgaged up to the eyes. everything is "on the drip" ie credit. when the interest rates go up, there will be a major catastrophe for the poorer section. the rich will take over their property, at reposession prices. Ireland is not as law abiding as the UK. there may be civil unrest.

Sounds like Brainclamp's theory on steroids.

The only hope is a united Ireland in the near future. Gerry Adams as PM will not be long in redistributing the wealth.

Martin McGuinness as Finance Minister would break the cash-in-brown-envelopes gang in two just for fun. ;)

Share this post


Link to post
Share on other sites

This is the lead article in the Irish Independent today:

Creeping inflation prompts fear of

increase in home loan repayments

Charlie Weston

................................................................................

...........................

HOMEOWNERS were warned

yesterday that interest rates

could surge in the next few

months.

The predicted increase of a half

per cent would add e626 a year

to the average mortgage repayment.

Soaring oil prices will prompt

central bankers to increase interest

rates in a bid to dampen

inflation, leading economist Niall

Dunne of Ulster Bank said yesterday.

Consumers and businesses are

already reeling as oil prices have

risen 50pc this year, hitting

motoring and home-heating

costs. Now the rising oil price is

set to impact on home loans.

Interest rates are likely to rise

by Apc early in the new year and

then by another Apc by the second

half of next year, according

to Mr Dunne.

Interest rates were particularly

likely to rise if oil prices stay in

the $60 to $70 range into next

year, Mr Dunne said.

Such a rate rise would add

around e52 a month to a

e200,000 mortgage taken out

over a 20-year period. A home

loan of this size, which is close to

the average mortgage, would see

typical interest rates rise from

3.55pc to 4.05pc.

Mr Dunne advised homeowners

to lock in to fixed rates,

which he said were likely to start

rising well before the European

Central Bank announces a rate

rise.

The Ulster Bank economist

said signs of economic recovery

in the key German economy were

likely to prompt central bankers

to raise interest rates to stem

inflation across the eurozone.

Interest rates have not risen

for almost five years as the European

Central Bank has repeatedly

reduced rates in a bid to

stimulate the struggling eurozone

economy.

But in Ireland, economic

growth and mortgage lending are

showing no signs of slowing

down, with the latest figures

indicating that a whopping ¤2bn

was borrowed for house buying

alone in July.

The Irish Central Bank, which

has one seat on the European

Central Bank, has warned borrowers

on a number of occasions

about over-extending themselves.

Despite this, the borrowing

boom looks set to continue following

the introduction by four

lenders of controversial 100pc

mortgages earlier this year. This

development is set to further

stimulate the thirst for borrowing.

Official figures recently indicated

that we now owe e1.20 for

every euro earned, when mortgages

and credit card debt are

added together.

Last night, president of the

Independent Mortgage Advisers’

Federation, Michael Dowling,

warned that some of the people

opting for 100pc mortgages could

find themselves in trouble if

interest rates were to rise.

“I am fearful of people who

have not saved enough money

and are instead opting for 100pc

mortgages. They could be

exposed or caught out if rates go

up,” he said.

-----------------------------------------------------

As truth seeking missile has said, things over here are gone completely over the top, and there will be huge repercussions when it all goes bang.

Share this post


Link to post
Share on other sites

Extending credit as much as possible

o A few weeks ago, the Bank of Ireland introduced a 100 per cent 35-year mortgage for first-time buyers. This move follows the First Active 100 per cent mortgage that was announced just before.

o Mortage lending is at record levels.

Rental yields are continuing their downtrend.

Share this post


Link to post
Share on other sites

How secure will you be when the credit runs out? 03/08/2005

http://www.davidmcwilliams.ie/Articles/vie...=&ArticleID=292

Have you ever heard the expression ‘Irish pricing'? It is a new term used in banking circles to describe the fact that Irish banks are offering large corporate borrowers money on much better terms than the British or continental banks.

Irish banks are giving away money.

They are undercutting other banks and slashing margins aggressively to get business. So, in big deals of €50 million or more, the Irish banks are offering lower interest rates, longer repayment terms and less onerous covenant demands. This is ‘Irish pricing'. It is great news for the lender and for the bank that gets the business; it looks good on the balance sheet initially as it boosts the bank's assets, its projected revenues and its market share.

But it also means that Irish banks are taking more risks than others. To generate the same return, they now have to do bigger deals and lend more money.

So to gain market share, they have to gamble a bit more than they did last year. They are running to stand still and, in the process, the quality of their loan book deteriorates. But when credit is ample, no-one bats an eyelid.

This type of thinking dominated corporate analysis during the tech bubble. Back then, the only thing that mattered was the growth in revenues, rather than the quality, sustainability or, in cases where dodgy accounts were later uncovered, whether the so-called ‘business' existed at all. In the late 1990s, nobody really examined what would happen if trading conditions changed.

We are seeing similar carry-on in Irish banking circles, and it is happening across the board. Irish pricing is not limited to the big guys; the little guys are getting in on the act as well.

On Friday, the Bank of Ireland introduced a 100 per cent 35-year mortgage for first-time buyers - the littlest of the little guys. This move follows the First Active 100 per cent mortgage that was announced two weeks ago.

The bank says that this is necessary, and that most little guys will be able to service the higher borrowings. It has put some fairly cosmetic restrictions on who can qualify, but in reality it is throwing money at anyone who comes through the door.

Rather than making houses more affordable, this type of product simply pushes the price of Irish houses up further, forcing the banks to lend even more cash against the same asset this time next year. Friday's central bank figures showed more than €2 billion was extended in mortgage credit in June, the highest ever monthly total.

Let's examine how the credit system works, how loose credit reinforces the upward pressure on house prices and how the banks ultimately become the slaves, rather than the masters, of the housing monster. It might also be helpful to entertain what could happen and who might pick up the tab when things go pear shaped.

The key to the system is collateral, and this is also where the systemic fault lies. When it comes to collateral, the Irish banks have always had faith in the housing market. In recent years, this faith has intensified to blind faith, and now, with a 100 per cent mortgage culture, we are observing new levels of Moonie-style devotion.

Moonie economics is quite straightforward and it works as follows. Take an average person, doing what thousands of Irish people have done in the past few years - buying an investment property.

The latest figures suggests that as much as 40 per cent of houses sold in Ireland in the past 12 months were either second homes or investment properties, so this is a fairly hefty chunk of the market, and by extension, of the banking business in Ireland.

So in this example, a house worth €400,000 is used as collateral to borrow €370,000 to buy another apartment for investment. The extra €370,000 goes into the system. The golden rule of monetary economics is that the more money in the system, the greater the upward price pressures on all other things.

Thus, the extra cash sloshing around in the system puts upward price pressure on houses, because there is too much money chasing too few houses.

This makes the original collateral now increase in ‘value' to €400,000. The bank extends another loan on the same collateral, failing to distinguish the chicken from the egg. This is the blurred hazy world of Moonie economics.

It is a state of mind characterised by financial back-slapping and corporate high-fiving, where each new loan begets another and the banks and the borrowers waltz blindly up a financial cul-de-sac.

Back in the real world, the only fundamental reason for house prices to rise is if the income from rent is rising. This is not the case in Ireland.

Rents have been falling, according to the Central Statistics Office for over 18 months now. If the income from the asset is falling relative to the value of the asset, then we have a problem. But because of the enormous amount of credit in the system and the way in which the system reinforces the original loan with another one, real world economics is suspended and moony economics takes over.

Moonie economics is the financial equivalent of a confidence trick. When things are going up, Moonie economics accelerates the upswing. When that confidence is punctured, banks pull in their loans, shut up shop and the opposite of Irish pricing occurs - a credit binge is replaced by a credit crunch.

It was interesting last year to hear one of our most senior bankers musing aloud at a conference about the need for Irish banks to remain under Irish management. He made the distinction between ownership and management - which struck me as highly instructive.

He went on to explain why. He suggested that in the event of a property crash we would need a national plan to prevent a credit crunch. It would be the banking equivalent of the countrywide reaction to foot-and-mouth, where everyone would pull together.

In these circumstances, it would be critical that the government could sit down with the country's main bankers and cut a deal. In the past, countries like New Zealand that allowed its banking system to be taken over by foreigners found that in its property crash of the early 1990s, the foreign owners simply cut lending limits, which had the effect of exacerbating the original downturn.

In the case where the management is Irish, there would be a much greater sense of the impending disaster, because all of us are tied up in the property game in one way or another, whether it is ourselves, our children or our close friends. Laudable and all as these sentiments are, how would such a plan work?

Think about it. In the event of a crash, Irish banks would see their loan books decimated. This would affect their ratings, their share prices, and ultimately their ability to raise new funds.

We, the public, would be in negative equity territory, so would be both unwilling and unable to borrow.

Traditionally, in such cases, the central bank of the afflicted country would slash interest rates dramatically to kick start borrowing. But we could not do this, as our interest rates are set in Frankfurt and might actually be rising.

Do you think the ECB would cut rates to bail out Ireland -1 per cent of the EU's population? No, I don't think so either!

The only thing that we could do is let the state borrow enormously by issuing Irish banking bonds to international investors. This cash could then be given to the crippled banks in the form of a 30-year swap, on the condition that the increased liquidity be squeezed into the system, preventing a credit crunch from taking hold.

But who would pay for this? Well, we would, because a special tax would have to be levied initially to pay the repayments of the bonds until the banks' balance sheets recovered. It is a scary prospect and one that the 100 per cent 35-year mortgage brokers or the guys involved in ‘Irish pricing' dare not contemplate.

Awhile back I heard one of our most successful bankers musing about national plans, financial war cabinets and credit crunches. And if you know he is worried about the ramifications of Moonie economics, you should be too.

Share this post


Link to post
Share on other sites

Yes, that was big news over here. The Financial Regulator's chief executive said it all really:

"I don't think the financial institution can stand in the way of a person's constitutional right to make mistakes"

The newspapers said that 120% mortgages were popular in Britain, are they?

Share this post


Link to post
Share on other sites
the celtic tiger is faltering

The celtic tiger is gone. What is left is a wilderness of financial tigers preying on the poor fools getting mortgaged to the hilt still and still believing that property prices can't fall !!

p.s. thanks to W. Shakespeare for the Rome "wilderness of tigers" imagery..

(Titus Andronicus)

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 341 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.