Irish Financial Review

Here is where Ireland ranks in global homeownership tables

Surprise, surprise, the Irish are not tops when it comes to owning the home they live in.

EU Homeownership Levels

EU Homeownership Levels (Irish data was never reported to Eurostat for this report)

Here in EU-land, the top place goes to the…Romanians! Yes, they manage better than most to own their homes. On their heels are the Croatians followed by the Bulgarians and then the Lituanians…the list goes on…all the way until you get to the Irish.

The Irish comes in at just about the EU average. Currently, various estimates put Irish homeownership levels at the low 70’s (Irish statistics weren’t reported for the latest Eurostat compilation).

In fact, when we look beyond the confines of the EU, Ireland surprisingly ranks well below some countries.

In China for example, homeownership levels in the major metropolitan areas of Beijing and Shanghai are estimated to be in the mid-80% range. In fact, across China, in an effort to dampen the appetite to own property, municipal authorities there variously introduced significant Capital Gains Taxes on investment properties and second homes. So, as consumers sought to get around the new tax laws, couples began filing for divorce…some called it the Capital Gains Split!

Outside of the major Chinese cities, homeownership levels are much higher.

Beyond China, other countries with very high levels of homeownership are:

Singapore – 90%

India – 86%

Russia – 84%

Mexico – 80%

Brazil – 74%

USA – 65%

Of course, homeownership is different across countries. In Romania for example, a very low percentage of mortgages are used by homeowners to finance property purchase whereas in major Chinese urban centres and across the US, the opposite is true.

What is important, especially in light of the current debate on higher deposit requirements here in Ireland is that we do not have an exceptionally high level of homeownership here.

It is also worth nothing that the current rate of mortgage drawdown in Ireland is on par with 1978 levels so there also no runaway credit boom, far from it!

The desire to own one’s home is not just an Irish one, Chinese, Indians, Mexicans, Brazilians all want the same thing…to own their home and so, we really have to ask, what’s wrong with that?

 

 

 

A valuable lesson on investing from Tesco

Tesco share prices have tanked…a mirror of what the retailing giant’s profit expectations are for the period ahead. Despite the overenthusiastic accounting at the firm, Tesco has also fallen in the minds of consumers.

IFR - Retailer Meltdown
Competition in this retail sector is fierce. In the UK for example, own brand product standards have risen significantly in recent years and so, the key differentiators that set Tesco apart from the competition have largely disappeared.

The supermarket group said that profits for the year to the end of February will now be less than £1.4bn, far below the £2bn expected by analysts and the £3.3bn reported last year.

Some analysts estimate that Tesco would make “very little, if any” profit in the UK during the second half of its financial year, which includes Christmas.

While the recent accounting scandal at Tesco is a major reason, a more worrying problem for shareholders is the potential for recovery. Tesco seems to have lost its way. Shares are close to their lowest levels since the start of the millennium. The revelation that Tesco may have been looking to boost its financial figures at the end of reporting periods will cause further concern among investors.

Since the departure of Sir. Terry Leahy, new management oversaw what has turned out to be a policy of running a slightly “leaner” company which observers blame for the negative impact on quality and service. These measures included reducing the number of staff in stores and ultimately, the quality of service customers receive.

For investors, Tesco provides a good example of the importance of keeping an eye on what matters when stock prices are concerned. Numbers matter…but in the customer service market, service matters even more. This is why the departure of key staff at firms can have a major impact.

Tesco was good under Sir. Terry. He had a brilliant mind for the business and kept a keen eye on customer service. His replacement team were akin to athletes taking shortcuts to get ahead. In both sports and business, the truth always comes out.

For Tesco share owners, the recent slide in price will be a bitter pill to swallow but hopefully, an important lesson also.

Service matters in the service industry! It’s the guiding principle that drives not only Warren Buffet but also every successful investor the world over.

Will the ECB put petrol in the QE car today?

Mario Draghi has proven a shrewd operator since he took the helm as head of the ECB over three years ago so it should be easy to read his lips on where the Central Bank’s thinking is, this is especially important as QE is on the lips (and minds) of many, here are the main areas of focus and impact:

Mario Draghi has major concerns about eurozone economies

Mario Draghi has major concerns about eurozone economies

Introductory Statement
The opening press statement will be much more important than past press conferences. In a recent speech, Mr. Draghi signalled urgency in boosting inflation, saying it needed to happen “without delay.” If this is again referred to and included in the introductory statement, it would go a long way to confirm that the bank has significantly progressed its thinking (and aligned with a major jobs message from senior EU political figures) on the matter of QE.

Government Bonds
Vague or specific reference – ECB watchers will keep a major focus on whether an explicit reference to possible government bond purchases makes it into the ECB statement, and how much Mr. Draghi dwells on this option during his Q&A. This would also send a powerful signal that the ECB is getting closer to this step.

Unanimity of simple majority
The ECB could progress with QE with a simple majority of the ECB’s 24-member governing council. However, this would be controversial as there is scepticism in Germany. So, the big test will be a simple majority at the ECB Governing council or a more substantial (i.e. Germany and other sceptical members) one.

Inflation or deflation
The inflation outlook for 2015 will likely be cut from 1.1% given that consumer prices were only 0.3% above year-ago levels in November. This is well below the Euro target of 2%. The major question for the ECB is why it has failed to act given the prolonged recession in many countries sharing the Euro.

Fracking and fracturing – the oil reality!
US fracking and OPEC fracturing – the price of oil has collapsed. In Iran, Libya, Venezuela and Russia, there are real economic concerns of economic demise in those oil and gas dependant economies (the rouble has fallen at a rate similar to the period of Russian debt default in the late 1990’s). And coupled with the current deflation in the Euro area, the falling price of oil has a major impact…pushing deflation even lower. If and how Mr. Draghi dwells on the matter will be another sign on his, and the Council’s thinking on QE.

The importance of Wills in Estate Planning

While December is a month of giving, it is also a great time to take account of personal finances and begin planning for the year ahead.

Wills are a key part of good estate planning

 

In financial planning, there are constants which any good personal financial planner will tick off as they investigate the specific needs of their customers. However, across all customers, there are matters that cannot be avoided in the matrix of sound advice, one of which is the need to impress the importance of preparing a Will.

It is important for everybody to make a Will because if they do not, and die without a will, the law on intestacy decides what happens to their property.

A Will can ensure that proper arrangements are made for dependants and that property is distributed in the way one wishes after for after death, subject to certain rights of spouses/civil partners and children.

It is also advisable to complete and keep an updated a list of personal assets. This will make it easier to identify and trace those assets after death. Keeping that list in a safe place is advisable.

What happens if you die having made a will
If you have made a Will, you are called a testator (male) or testatrix (female). A person who dies having made a valid will is said to have died ‘testate’. If you die testate, then all your possessions will be distributed in the way you set out in your Will. It is the job of the executor or executors you named in your will to make sure this happens. There are legal limits as to how much of your property goes to which person, as set out in law in the Succession Act, 1965. An executor can be a beneficiary under the will. In other words, the executor can also inherit under the will.

Read full details on the role of Wills here

Should you create a do-it-yourself Will?

Some people do but one needs to be extremely diligent that they follow the precise requirements laid out in law that decide if a Will is deemed valid or invalid. If you follow the link provided, this will give you all the information you need to make a fully informed decision on whether you create a Will on your own or with the assistance of a professional, such as a solicitor.

Central Bank lending limits part of perfect storm in property market threat

The Irish property market is set for a very uncertain period in the months ahead.

First, generous Capital Gains Tax exemptions on property are due to expire at the end of December. These were introduced at a time when property prices in Ireland were in free fall. Nationally, prices here collapsed 60% from their peak. The impact of tax incentives to lure investors back into the market had an immediate impact with an estimated 50% of property transactions resulting from investor cash deals. This in turn drove prices with Y-O-Y rises of 18%.

Homeownership

Homeownership

Second, and of more significance are new Central Bank lending guidelines. Beginning January, homebuyers using mortgage finance to fund the purchase of their property must have a 20% deposit. To date, lenders had sought between 8% and 10%.

Nothing wrong with prudent lending. Most people automatically get the logic and generally, people welcome a lending regime that is based on sustainability. But the problem with rigid LTV limits is they risk tossing the baby out with the bath water. Many excellent mortgage candidates will be refused a mortgage under the 20% rule even though in countries across the globe, including Germany, the UK and beyond, they would be approved. In modern finance, few countries are truly isolated and lending has generally evolved on the concept of risk pricing. Internationally, borrowers with less than 20% deposits pay a small risk premium designed to protect the bank for the increased lending risk. Where credit histories are excellent, risks to banks are much lower (but yes, there is always a risk of a collapse in personal income for a myriad of reasons).

Of course, the Central Bank is its own master and smarting from years of being accused of being too soft on bank lending, it seems to have a winner with the LTV restrictions; lots of existing, older, mortgage holders get it and support it with a sort of self-referencing logic being applied.

From January, unless you can cough up the 20% deposit (or have a rich aunt or uncle that can get you over the limit), you’ll be bang out of luck. The problem with LTV restrictions is they are far more protective of bank capital than they are of consumers since the 20% deposit is lost first in the order of repayment (if and when it comes to that!).

A more ideal restriction could have been built around the debt ratio of borrowers as this is a much more clinical measure of affordability with long-term caps on rate increases.

Anyway, following comments earlier this week, it seems that the Governor of the Central Bank is not for turning on the LTV debate, 20% it is come hell or high water!

Which brings us back to the property market.

Government policy (and by default, Central Banking policy) must serve the people. Its construction must be for the betterment of the citizens and hopefully over time, the wisdom of the new Central Bank restrictions will become obvious. However, in January, coupled with the ending of the CGT benefits, there is no doubt that a perfect storm is brewing at a time when the national consumer mood is showing signs of recovery.

Property prices have a major influence on the national mood of consumers and it property prices stumble, so too could the national mood!

 

 

As bank charges depositors, personal wealth management more important than ever!

Ever since the European Central Bank went negative on interest rates, there has been a certain level of expectation that banks would pass on those negative interest rates to their customers. Well, that day has now arrived!

Personal Wealth Management Key to Long Term Financial Success

Personal Wealth Management Key to Long Term Financial Success

Commerzbank is the first major bank to make such a move. It says that it will encourage big clients to move cash into alternative investments while introducing fees on deposits.

And, while the banking giant says private savers and small and medium-sized businesses will not be affected by the policy, the shift in charging for holding deposits is a major one.

Drivers

In June the European Central Bank (ECB) said that banks would have to pay to park money at the central bank.

That negative interest rate was an effort to spur banks and other financial institutions to lend money and not leave it on deposit.

In September it made holding money at the ECB even less attractive by cutting the rate on overnight deposits to minus 0.2%.

Greater investment awareness

Moving forward, consumers in general, large and small will need to improve their general awareness of investing and investment markets if they are to escape the devastating impact of charges on deposits and financial repression in general.

“Savers everywhere have become a sort of ‘unwanted’ said Frank Conway of MoneyWhizz.org.

“Today, Irish banks are paying a pittance to savers and depositors. Additionally, they charge significant monthly fees on customer accounts where  balances falls below certain thresholds” said Mr. Conway.

Consumers everywhere must now take a more proactive role in the management of their own personal wealth and long-term financial needs. This will include a high degree of personal learning or working with professional advisors to fill the gap.

Best fuel deals in Ireland

The US has allowed a whole range of new technologies to be deployed for locating and extracting oil and gas. ‘Fracking’ as it is known has resulted in an explosion of oil and gas production to such an extent that it is flooding the world market and pushing down prices. Terrible news if your economy depends on oil and gas revenue but great news for Irish motorists!

IFR - Gas Prices

Petrol and diesel prices have fallen in recent weeks

So let’s take a closer look at where the best prices are nationally.

PETROL:

Station Price
Applegreen
New Main Street, Tullamore
140.8c
6th Nov
Applegreen
Coolanoran, Newcastlewest
142.8c
6th Nov
Top
Smithfield, Croagh
142.8c
4th Nov
Esso
Clara Road, Tullamore
142.9c
6th Nov
Texaco
Enniskillen Rd, Manorhamilton
142.9c
5th Nov
Great Gas
Roscommon Road, Athlone
142.9c
4th Nov
Garvey’s
St. Marys Rd, Newcastlewest
142.9c
4th Nov
Top
St. Itas Rd., Newcastlewest
142.9c
4th Nov
Great Gas
Bypass Road, Bandon
142.9c
3rd Nov

Now, the best deals on diesel:

Station Price
Applegreen
New Main Street, Tullamore
132.8c
6th Nov
Texaco
Enniskillen Rd, Manorhamilton
133.9c
5th Nov
GABOTO OIL LTD
Clondalkin truck and trailer park, Cloverhill Rd, Clondalkin
133.9c
5th Nov
Top
Limerick Road, Ennis
134.8c
4th Nov
Applegreen
Limerick Road, Ennis
134.8c
4th Nov
Top
Hacketstown Rd, Carlow
134.8c
4th Nov
Applegreen
Classes Lake Retail Centre, Ovens
134.8c
3rd Nov
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