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Some Good Financial Advice....not

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Copying from 'down under' for a 'deposit up front' plan

WE are a typical professional couple grasping to get on the bottom rung of the property ladder.

We are both paying rent in a flat and a house at different ends of the city.

We have only a few thousand euro saved and every house or apartment we look at wants a 10pc deposit up front.

We are particularly interested in buying 'off the plans' which would give us a breathing space.

We have talked to building societies which say they are happy that we can afford to meet the mortgage repayments even if the mortgage was close to 100pc.

However, the lack of a deposit is hindering us. We have heard of an Australian system coming here which advances the deposit. Where can we get more information?

The scheme you are talking about is available from a UK firm, Exchange Insurance Company, who will cover the deposit for six months, twelve months or longer at a cost of €1,000 or more for a typical €300,000 new house purchase. Exchange have linked up with McInerney Homes, one of Ireland's longest-established and largest homebuilders.

First-time buyers or investors who have not yet got access to cash, can take out an Exchange Bond which is an insurance policy which allows them to exchange contracts on a new property without putting down a cash deposit (normally 10pc). The buyer pays the insurance premium at the exchange of contracts (instead of the deposit) and completes the house purchase in the normal way by paying 100pc of the purchase price. The Exchange Bond can also apply to a newly-built property where staged payments apply.

With many mortgage lenders now advancing 100pc mortgages to professionals, the Exchange Bond should suit home-buyers with limited spare cash. The bond is likely to suit people like you who want to buy "off the plans" and who may have to wait up to 15 months for their home to be completed.

The Exchange Bond does not come cheap, with a premium currently €325 per €10,000 deposit over six months. This would cost €975 for six months for a couple required to put down a €30,000 deposit on a €300,000 home.

There is a flat non-refundable administration fee of €65.

This brings the cost of the bond to €1,040 on a €30,000 deposit for six months, or €2,015 for twelve months.

The Exchange Bond may allow you to save for longer and will, in some cases, remove the necessity to borrow the deposit for a new house. The Exchange Bond allows home-buyers to "fix" the price of the new home sooner than might be the case otherwise.

By exchanging contracts now, home-buyers can save themselves the risk of price inflation of about 5pc per year.

If you are unable to complete the house purchase after exchange of contracts, the Exchange Insurance will pay the deposit to the builder and will seek to recover the deposit from you.

In Australia, 25pc of new homes are now bought using such bonds, with 75pc of new homes in the Sydney area affected. (JA)

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This is an indicment of the sheer desperation out there. Many couples and young families (egged on by vested interest interests in the media spinning scare stories of endless price rises) are encouraged to try any means possible to get a foot on the property ladder - such is their terror of "missing the boat".

Lenders will take advantage of this desperation and offer loans for deposits at ridiculous terms - €2,015 for twelve months on €30,000!! It is scandalous. However, the fear of never being able to buy if you don't make the leap soon, is so overwhelming that some will just take anything.

It is very sad. You can't save people from themselves I know, but in Ireland market the constant bullish media spin has been unrelenting. As a result, many supposedly well-educated, professionals have been suckered just as much as the less sophisticated. The muppetry has crossed all sections of society.

As walktothewater said recently, Ireland now has a surreal feel about it. A population of "property zombies" constantly repeats the bullish mantra to all who will listen. To be a bear is such a lonely existence - one feels like Donald Sutherland in Invasion of the Body Snatchers.

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Flash

Can only agree. I was going to write more, much along the lines of your thoughts. The content of the article is such absurd bubble mentality drivel that it speaks for itself. If this is representative of the thinking behind the participants of the Irish property market then heaven help the Irish when it finally goes pear-shaped the economy and the prospects for millions will be ruined not for years but decades.

Edited by OnlyMe

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To be a bear is such a lonely existence - one feels like Donald Sutherland in Invasion of the Body Snatchers.

I've used that reference in the past here as well.

That final scene. Hmm. Will you succumb?

Our contrarian hero "converted". The VIs wetdream.

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I've used that reference in the past here as well.

I didn't know that. Perhaps that movie will become strangely iconic for HPCers. :)

Edited by Flash

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I didn't know that. Perhaps that movie will become strangely iconic for HPCers. :)

Iirc, I used it in a thread about ID cards.

All same meaning for me. How those in charge and influencing things would like populations of "zombies", aka "sheeple" I believe.

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This is an indicment of the sheer desperation out there. Many couples and young families (egged on by vested interest interests in the media spinning scare stories of endless price rises) are encouraged to try any means possible to get a foot on the property ladder - such is their terror of "missing the boat".

Lenders will take advantage of this desperation and offer loans for deposits at ridiculous terms - €2,015 for twelve months on €30,000!! It is scandalous. However, the fear of never being able to buy if you don't make the leap soon, is so overwhelming that some will just take anything.

It is very sad. You can't save people from themselves I know, but in Ireland market the constant bullish media spin has been unrelenting. As a result, many supposedly well-educated, professionals have been suckered just as much as the less sophisticated. The muppetry has crossed all sections of society.

As walktothewater said recently, Ireland now has a surreal feel about it. A population of "property zombies" constantly repeats the bullish mantra to all who will listen. To be a bear is such a lonely existence - one feels like Donald Sutherland in Invasion of the Body Snatchers.

It is amazing that the parallel between the crazy credit schemes like this and house price falls in australia was not picked up by the "adviser".

Also why didi they not advise saving for the deposit in order to reduce risk of negative equity.

I don't think anyone in Ireland understands the term negative equity, and those that have heard of it knows that it will never happen here :lol::lol::lol:

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It is amazing that the parallel between the crazy credit schemes like this and house price falls in australia was not picked up by the "adviser".

The advise in Ireland is simple: Never Rent, Buy Property Always. Im certain that The Great Irish Property Bubble will feature in future University courses-- history, sociology, economics. Watching Ireland 'going Japanese' will be fascinating- well for outsiders and those dwindling few Irish not participating in the mayhem. And unlike Japan, that it could happen in a European, free-market society in 2005 will make it all the more astounding.

My bold prediction is that prices will go parabolic here starting mid-2006. Perhaps +5%/mth increases this spring and summer. Why? There will be a "race against rates" stampede to buy once it becomes clear that Trichet is cranking rates higher. We'll have a return to queues outside building sites and people outbidding each other so as they can "get on the ladder" and lock in a fixed rate for 5yrs.

This is the mentality here.

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The advise in Ireland is simple: Never Rent, Buy Property Always. Im certain that The Great Irish Property Bubble will feature in future University courses-- history, sociology, economics. Watching Ireland 'going Japanese' will be fascinating- well for outsiders and those dwindling few Irish not participating in the mayhem. And unlike Japan, that it could happen in a European, free-market society in 2005 will make it all the more astounding.

My bold prediction is that prices will go parabolic here starting mid-2006. Perhaps +5%/mth increases this spring and summer. Why? There will be a "race against rates" stampede to buy once it becomes clear that Trichet is cranking rates higher. We'll have a return to queues outside building sites and people outbidding each other so as they can "get on the ladder" and lock in a fixed rate for 5yrs.

This is the mentality here.

No doubt the next year will be fascinating.

+5%/mth is a bold prediction, my hat's off to you for sticking your neck out. For me, I can't see it going gangbusters from here. Gross rental yields are already below 2% in many areas. Landlords have been prepared to put up with this because, with interest rates so low they can't get a decent return elsewhere. But with interest rates rising, property will look like an ever worse investment.

Still, markets do what markets do. Having watched the NASDAQ in 1999/2000 in sheer disbelief I can accept that almost anything can happen in the short-term. However, the short-term is all it is. :)

In the nicer parts of County Dublin, you can now annually rent a very nice property for around 1/45th of its market cost (inc. 9% stamp), let alone if prices go up further. Is there anywhere else around where property is so overvalued on this measure?

Edited by Flash

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This article in last week's Irish Independent is definitely quite pessimistic

This article in last weeks Irish Independent

Buyers get house price alert: 30pc drop feared

THE ten-year economic boom is coming to an end.

The economy is at risk of a severe recession which could send unemployment soaring, incomes falling and house prices plunging by a third, the Economic and Social Research Institute (ESRI) warns in its new long-term forecast.

The Government's independent advisers say such a collapse is not inevitable, but recommend urgent measures to cool the housing market and reduce the economy's dependence on the building industry and rising house prices

http://www.unison.ie/irish_independent/sto...&issue_id=13415

Edited by greenfroggy_101

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No doubt the next year will be fascinating.

+5%/mth is a bold prediction, my hat's off to you for sticking your neck out. For me, I can't see it going gangbusters from here. Gross rental yields are already below 2% in many areas. Landlords have been prepared to put up with this because, with interest rates so low they can't get a decent return elsewhere. But with interest rates rising, property will look like an ever worse investment.

Still, markets do what markets do. Having watched the NASDAQ in 1999/2000 in sheer disbelief I can accept that almost anything can happen in the short-term. However, the short-term is all it is. :)

In the nicer parts of County Dublin, you can now annually rent a very nice property for around 1/45th of its market cost (inc. 9% stamp), let alone if prices go up further. Is there anywhere else around where property is so overvalued on this measure?

Let me be clear on my predictions since it looks like I'll be held accountable :)

Im saying we'll see noticeable spikes in the upcoming Spring/Summer period-- mad spikes -- like the 400K house in South Dublin going for 420k the following month, and 441k the next etc... it'll be the final blow out... the TSB index will pick it up and it'll be all over the papers.. i can see it now, Sunday Bus Post "house prices rocket" etc.

btw I totally agree with your point on renting. I've just moved into a super 2-bed place in D6 for €1,050/mth- got a small cut in rent by offering 6mths up front cash. The place must be valued at €600k+ easy.

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A population of "property zombies" constantly repeats the bullish mantra to all who will listen. To be a bear is such a lonely existence - one feels like Donald Sutherland in Invasion of the Body Snatchers.

:P:D:D:lol::lol::lol:

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got a small cut in rent by offering 6mths up front cash.

You could have used that money to put down a deposit on a one bedroom 395sq foot luxury executive apartment in Muff Co.Donegal scheduled for completion 2008.

You could commute via the airline in Carrickfinn to Dublin.

Of course the "capital appreciation" would mean you could flip it on at twice the price, so you won't even need your job in Dublin.

A nice equity release and you can buy a holiday home and investment in the Cape Verde, as recommended by Eddie Hobbs, no rip offs over there.

That small cut in rent has cost you your automatic god given right as an irish citizen to become a property millionaire.

Maybe you could sue the landlord?

:lol::lol::lol:

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I fail to see the problem. 2015euro on a loan of 30k for a year is 6.7%? Not bad considering this is unsecured debt borrowed by someone without the wherewithal to save up a deposit in the first place and therefore a reasonable credit premium should be demanded by the lender. As a financing methadology it would appear reasonable to a borrower, but ultimately the prospect retains the risk. What about the collection methadology if you are unable to complete, do they come and take your kneecaps then?

Of course if one were to start talking about the wisdom of purchasing an overpriced shoebox in the first place that is an entirely different discussion.

To me it would appear to be some honey coated bait to allow the prospective credit to sign on the dotted line, even if they couldn't debt enslave themselves otherwise.

As someone else observed, fruitcakes the lot of them. They deserve no sympathy.

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I fail to see the problem. .

The problem is that the "adviser" did not flag up any problems with not having any deposit nor ask why they wouldn't save for a deposit. Remember saving, piggybanks and all that...

Nor that off-plan newbuilds are the first to fall in a crash.

Nor that there is no good way of assessing whether you are getting value on a new build until it is built.

Nor that buy -now -pay -later is a game only the banks win at.

Those are the problem(S).

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I fail to see the problem. 2015euro on a loan of 30k for a year is 6.7%? Not bad considering this is unsecured debt borrowed by someone without the wherewithal to save up a deposit in the first place and therefore a reasonable credit premium should be demanded by the lender.

I'm not so sure. It is borrowed for a specific asset on exchange of contract. There would be very few cases where the exchange takes place but not the completion and even then the risk of default after that must be small.

6.7%...you can get that on a car loan from most banks. The exchange bond should be on a much lower rate.

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"6.7%...you can get that on a car loan from most banks. The exchange bond should be on a much lower rate."

I'm sorry to diagree, but whatever the name, as the lender of the deposit has no recourse to the actual property, this is consumer credit. Not quite a vanila loan, as repayment comes from the mortgage receipts released by the 100% loan to fund the purchase so a bit more secure than a bullet repayment coming from some feckwits cashflow. (Hint they couldn't save for a deposit in the first place?)

Completion is inherently uncertain - changing life circumstance, market crash, developer goes under etc. Therefore you would expect a credit premium?

The rate should be even higher as the lender can't even repo the car, per your example.

Please let me know if you disagree, but if anything this seems like cheap financing for financially illiterate muppets. Got to provide them enough rope after all...

As has been pointed out, and I wholeheartedly agree, there will be huge problems with the valuations of new builds, which is probably why they have to use suche ahem 'creative' financing sales techniques in the first place.

My observation was with the headline loan rate, which at approx 4.5% over Euro base rates is not unreasonable and even compares favourably with credit cards at base +20%. Of course one would be tool of novel magnitude to use expensive variable short term credit to finance a long dated liability.

As an aside anyone seen the film repo men? Pure class if a tad surreal.

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I see your point LHS re. lender risk. The developer going under scenario is a real possibility and we may see a high profile incident in the near future.

The industry is being all the more creative in getting overstretched borrowers into the market. As I have said before, banks do not offer 100%+ mortgages because they are being charitable, they do it because they have to, in order to retain market share and keep to their lending targets.

100% mortgages, bonds for deposit, parents remortgaging to provide deposit, buying with a friend - these are the last desperate throws of a market heading for the inevitable.

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The industry is being all the more creative in getting overstretched borrowers into the market. As I have said before, banks do not offer 100%+ mortgages because they are being charitable, they do it because they have to, in order to retain market share and keep to their lending targets.

100% mortgages, bonds for deposit, parents remortgaging to provide deposit, buying with a friend - these are the last desperate throws of a market heading for the inevitable.

Oh no no no. This shows the benevolence of an industry that will assist in, all possible ways, to ensure that folks can attain that essential of individual fulfilment, their "own" property.

Doesn't it?

<_<

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In the nicer parts of County Dublin, you can now annually rent a very nice property for around 1/45th of its market cost (inc. 9% stamp), let alone if prices go up further. Is there anywhere else around where property is so overvalued on this measure?

Some of the higher priced apartments being sold off the plan in Sydney and Melbourne (Australia) in early 2004 were around that level. The buyers were frequently using deposit bonds, as well B) .

Now the apartments have been built, and the market has turned, there's a lot of legal action as buyers try to find ways to refuse to settle :P .

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I'm still trying to get the recent Irish property market experience into perspective.

I equate using a 100% interest only mortgage to buy a BTL in Dublin at about the same risk as margin trading equities at the 1929 peak. In other words unless you will post a lot of collateral and take the capital loss, you are almost certain to be wiped out and sold out.

Using a mortgage bond to commit to an 18 month delivery which will need to be financed with a 105% mortgage, (got to fit it out with the plasma to rent it) at the end of 2005 would be the equivalent of?

Selling credit default insurance to an Enron creditor after the news started coming out?

Juggling lit torches inside the tank of a half full petrol tanker?

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No signs of an Irish property crash yet - plenty of warnings though (from the IMF, CB, ECB , OECD, ESRI & me :) ).

All I'm asking for (initially anyways) is a 2% - 3% fall in a year. I'd be happy

paying the rent then because houses would be falling in value by as much as I'm paying in rent.

Right now the renting position is gut-wrenching and is like being

in a short position on a stock while it continues on an uptrend unable to find a ceiling.

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Right now the renting position is gut-wrenching and is like being

in a short position on a stock while it continues on an uptrend unable to find a ceiling.

Whilst all your friends are long on the stock and laugh at you for being on the wrong side of the trade.

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Right now the renting position is gut-wrenching and is like being

in a short position on a stock while it continues on an uptrend unable to find a ceiling.

True enough. I dont kid myself that I've missed the boat. I would have loved to have been living/working here 5yrs ago. I probably would have 'gone long' back then. hey while we're reminiscing I wouldve loved to have bought 1000 shares of MSFT in 1984, but didnt do that either!

Personally Im dealing with the facts now today as I see them. And i cant change the fact that the house i rent goes for (guess) €600k, and was probably half that 5yrs ago. While I wish it were €300k, and I'd be a buyer alll day long, the truth is I'm better off renting this particular roof over my head for €12,600/yr.

the other solace is i rent a very nice place for only 20-25% of my after-tax income and my gold, nat gas and short-term cdn bonds are doing very well thank you :)

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  • 302 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% +
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      • Even
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      • up 5%



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