Irish Financial Review

Bonkers Brexiteers

These three Brexiteers are just bonkers!

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Not doing his homework. David Davies blames the EU for lack of progress on UK side.

When Canute, the 10th Century King used the incoming tide to demonstrate to his courtiers that he had no control over it, the story was later twisted into one of a mad king attempting to hold back the incoming tide.

Today, we have Canute wannabees, but they are in fact the real thing; they are bonkers! The three Brexiteers, Liam Fox, David Davies and Theresa May are all attempting to prove that a falsehood is in fact a reality and they are determined to prove it.

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Liam Fox is leading Theresa May down a path of failure as he eyes the Tory leadership position

On the issue of Brexit, each has attempted to plaster over the many lies that were told in the lead-up to the UK Brexit Referendum and have continued to use delusion to cover the cracks that have begun to appear ever since.

On the ‘have-our-cake-and-eat-it’ approach to the EU common market and market access negotiations, they are seeking to both leave it and remain in it at the same time; impossible on all fronts.

On the matter of the financial settlement (a.k.a the Brexit bill), while this is probably one area where flexibility on both sides can work, there are some on the Brexit far-right that believe no bill should be paid. Maybe this is a negotiation tactic? Ultimately, it almost doesn’t matter what the final bill will be since everybody is going to be worse off as a result of Brexit anyway, especially in the UK.

What is most concerning about the three Brexiteers is their entire approach to negotiations, it is simply bonkers.

The UK, one of the EU’s leading economies voted to end the free market access that grew its wealth and now, cutting out a big part of its economic engine must be achieved with no damage to the economy. It’s a bit like asking a surgeon to remove the foot of an elite athlete in such a way that the athlete can return to peak competition without delay.

As a result, unable to achieve the impossible, the three Brexiteers are now starting down that well-work path to the blame game. Instead of telling the British public they are in an impossible position, they turn to fudge and threats. Irish peace, it could be on the line according to some Brexiteers. The role of the ECJ, it is open to transition, or is it? Influence over EU decision-making, the Brexiteers demand it even though the Norwegians and Swiss don’t have it (they are in the EEA and pay into the EU budget). Everything is a fudge, a call for the impossible, flexibility on lies, lies about facts and the whole thing becomes one big Brexit mess which the Brexiteers hope will become their first major export across the EU.

If they really do care about the interest of the British public, Brexiteers must hold a national plebiscite on the final Brexit deal. It can be non-binding but at least that way, there would be no ambiguity about the public support for the deal negotiated on their behalf by the Brexiteers.

In the meantime, the have-our-cake-and-eat-it approach is well past its use-by date. It’s time for a more honest approach from the Brexiteers.

Avoid mortgage complacency

With house prices and rental yields on the increase in Ireland at pace not seen since the Celtic Tiger days, many mortgage holders would be right to ask what of mortgage rates?

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Mario Draghi has been nurturing the Eurozone economy back to health by keeping interest rates at historic lows

Last week, in the US state of Wyoming, a gathering of the leading Central Bankers, including Mr. Mario Draghi, President of the ECB were watched for signs that their enthusiasm for historic low mortgage interest rates might be about to shift.

But the good news for Irish mortgage holders was that no such signals were given; it seems that the current ECB rate of 0% is set to stay for a while longer.

So, with no immediate risk of a rise in mortgage repayments, can mortgage holders sit back and relax? The answer to this question depends on your attitude and appetite for risk.

Definite increase will come

A rise in mortgage repayments will come at some point. This is not a maybe, this is certain. The reason is the job of the European Central bank is to nurture the Eurozone economy back to health and when it does, that means more inflation and higher interest rates.

How high could they go?

In terms of how high interest rates could go, let’s consider the absolute minimum levels desired by the ECB.

Its target rate of inflation is set at 2% and across the Eurozone, inflation has ticked up. But because the rate of economic growth has been a little sketchy in Italy, France and other Eurozone countries that share the Euro, the overall rate of economic growth has not been sufficient to warrant an interest rate…yet!

In July 2008, when the average rate of inflation across the Eurozone was in excess of 3%, interest rates reached an all-time high of 4.25%. Compared to the 0% of today, mortgage holders then were having a rough time of it.

To put this perspective, anybody with a €250,000 mortgage, tracker payment over 30 years was paying €1,396.03 per month (that’s on a 1.1% tracker mortgage) in the summer of 2008.

Today, that same mortgage holder is paying €815.63.

The difference per month is a massive €580.40, or just under €7,000 per year.

Good planning is a must

The ECB is likely to make small adjustments to interest rates if and when it does begin to increase them. But using the example of a €250,000 mortgage, tracker interest rate of 1.1%, each quarter-of-one-percent increase (.25% or 25 basis points) would result in repayments increasing by about €30 per month (€29.29) on a 30-year term.

As with any good money management practice, now is the time to begin thinking ahead and building the extra funds to cover rising mortgage repayments. And even if it takes the ECB longer than anticipated to increase interest rates, having some additional cash in reserve and the monthly financial discipline to actually save a little more each month is a good thing to do.

Remember, when it comes to life’s financial emergencies, good planning is a great defense.

No reason property tax bills should spike like property prices

Could you handle your property tax bill doubling?

When property taxes were introduced in Ireland in mid-2013, property prices had fallen by over 50% from the pre-bust highs. The worst recession since the Great Depression was raging and almost 100,000 mortgage holders were in arrears on their mortgage repayments.

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Michael Noonan delayed reassment in 2015 but will his replacement as Minister for Finance, Paschal Donohoe do the same

Property taxes were assessed on the prevailing market prices and in 2015, the then Minister for Finance, Mr. Michael Noonan decided to delay any reassessment of taxes until 2019 which meant that homeowners would not face a rise in property tax as a result of rising property prices.

But 2019 is now less than 18 months away and homeowners across the country may be wondering what their future property tax bill might cost them.

Since property prices are linked directly to the value of a particular property, rising property prices impact the taxable amount homeowners are liable for. Across Ireland and due to the shortage of property available for sale, property prices have been pushed up as a result. In fact, property prices have risen by 50%, 60% and a lot more since 2013 in some places.

Prices have risen sharply in recent months with the relaxation of deposit rules for first time buyers, which were cut from 20% of the property price to 10%. With first time buyers the largest segment of the property market, their access to credit was made easier with lower deposit requirements.

Whether or not property tax should increase in line with property prices is a hotly debated issue globally. For homeowners, the tax can become a runaway cost that has no correlation to actual take-home pay. Additionally, if the cost of local services is effectively managed, the case for rising tax bills should be made to property owners first. After all, it should not cost 50% or 100% more to deliver local services just because property prices were pushed up due to a temporary shortage of property.

A few options for Government may be:

  1. It chooses to push the issue of reassessment out into the future keeping tax bills the same as they are currently.
  2. It goes ahead with a reassessment of property values but reduces the taxable rate of .18% where it could engineer little or no rise in property tax bills.
  3. It goes full steam ahead with the reassessment and leaves the taxable rate unchanged resulting in a rise in property tax bills.

With the clock ticking towards 2019, property owners will be right to wonder how their household finances could be impacted by the final decision of Government on the issue.

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