October 6, 2014

Screams in the suburbs

Posted in Sunday Business Post · 49 comments ·
Share 

Ireland is about to move into the Repo Man phase of its credit and debt cycle. This phase is not pretty, because when the repossessor comes to get you, things can turn very nasty, very quickly.

If you saw the 1984 movie Repo Man with Emilio Estevez, you’ll know what I mean. Now the Repo Man is coming for the professional classes. Houses and assets will be seized, causing a massive dislocation in the higher, respectable echelons of Irish polite society.

Over the past few weeks, there have been numerous stories about large sections of the professional classes in Ireland going bust. The tales involve sketchy details about professionals – doctors, dentists, lawyers, accountants, bank managers and senior heads in the financial outfits all around the country – who got in over their heads in boom-time investments which went sour.

It may be difficult to feel sorry for some people who borrowed big in the hope of a quick buck. The professions are not the obvious recipients of sympathy in Ireland, but bear with me, because the story of what happened next to Ireland’s mid-ranking property players is an interesting and cautionary one.

In reality, the still-solvent mid-tier property investor is in a worse position than the big developer who went spectacularly bust. When the mega-developers went wallop, they did so in grandiose style and, after a year or two in bankruptcy purdah, they are back again.

For the professional classes, so obsessed with respectability and outward signs of success, the ramifications of their money mistakes have been ongoing and are not yet over. Not nearly.

Now that foreign vulture funds have come in to buy many of these assets at a discount, the presumption is that, while these professionals have taken a hit and are now out of pocket, they are off the hook. After all, haven’t those assets that they owned been sold, albeit for way less than they were valued at in 2007?

So the barristers and doctors and the like who owned the assets are sore, but at least they’re out of the woods. Right?

Wrong. This is not the case.

The banks have sold the assets to the foreigners and the difference between what the assets were sold for and the original value on the banks’ balance sheets is covered by Nama bonds. This is what the taxpayer is picking up. Nama hopes to minimise this bill, over time. This debate is a topic for a different day.

What interests me now is what happens to the money that was borrowed in the first place. Where does that go? Who is responsible? And why is it important, in these cases, to follow the money?

To understand the lasting legacy of the credit collapse in Ireland, we need to understand the dynamics of this debt.

The reason this lesson is important now is the fact that the “property thing” might start up again, and people’s memories are short. In order to prevent a second generation being beguiled and ultimately destroyed by property schemes, it is important to understand what happens when the market turns.

A building bought with debt in the boom separates in the bust between the asset itself and the debt associated with it. Because the vast majority of the deals done in the boom were debt-financed, the debt element remains, for the original investor, the anvil around his or her neck.

When the professional could borrow at 5 per cent and was promised a 50 per cent return if the market kept going up, you can see easily how they could get into debt in huge amounts.

To see what is happening, take the following hypothetical situation, dealing with round numbers.

Let’s say the original building was bought for €100,000. The professional bought this using a split of debt and equity. He put in €20,000 in cash and borrowed €80,000. He borrowed the €80,000 from the bank in a normal loan which, in the event of the deal going pear-shaped, would have to be paid. These were personal loans maybe pledged against the family home or some other assets. Although they appeared to be linked to the building in question, they were loans.

In the crash, the value of the building falls by, say, €60,000. So it is now valued at €40,000. This means that the equity the investor had is totally wiped out. It was wiped out when the price of the building fell below €80,000.

The bank sells it for €40,000.

At this stage, the building is split between the asset and the loans. The loans are now assets in themselves. The bank tries to recover some value for the building, and then something strange happens: the loans are sold to a vulture fund.

The professional still owes €40,000 to the bank, but the bank knows that it won’t get the money back in the short term. During the past few years, the bank has had a steady-as-she-goes approach with these loans, stretching out credit terms, putting the loans on interest only, and making sure that the loans don’t default.

But now we are into a very different stage of the debt repayment cycle. It is a stage that may see thousands of professionals pushed into bankruptcy. There is a new player on the block who wants his money back and wants it quickly.

Getting back to our example, a bank exiting Ireland or closing down – such as IRBC or Danske Bank – sells the over hang loan – €40,000 – to a new vulture fund for, say, €20,000. Then the vulture fund pursues the professional for the full €40,000, hoping to make €25,000 in the process.

This is where the change has come in recent months – and, in a sense, we are now in the final phase of the great Irish property crash; the Repo Man phase. These new debt collectors are a totally different proposition to Irish banks. The guys who are coming to get paid in full have a similar 3-30 rule to the vultures who are buying assets. They want to be here for three years, and want a minimum of 30 per cent return for their efforts.

If they can get more, it will be a bonus – but they won’t settle for less.

And after years of forbearance, we are now moving into the final liquidation phase, where houses and other assets pledged as collateral for the boom-time move into property will get repossessed.

It’s not going to be pretty on the leafy greens of Ireland’s swankier golf clubs.


  1. Lius

    I bet most of these professionals will get away with it. Their loan documents will be found to be incomplete / faulty or they will have transferred the title of the home to their wife’s / children’s names. These big guys have had a lot of time since the crash to squirm out of their commitments.

    They always get away with it.

  2. SMOKEY

    Yeah but there is also the real probability that there are many “serial defaulters” may have hidden assets ready to pay off the loans.
    One of the first suspicions about those who cant pay was, THEY CAN PAY, BUT WONT.
    We shall see who comes up with the dosh once the trophy house is on the line. Subscribe.

    • SMOKEY

      Never mind the subscribe bit, I thought I was first. Damn you Lius!

    • Grey Fox

      Smokey, please don’t fall for the “strategic defaulter” myth, one has only to look that the Court lists from around the country to see that this term was a convenient creation at the outset of the crisis, created by the banks and perpetuated by Government and the media.

    • redriversix

      The only evidence of strategic defaulters is from the banks when THEY do it ( A.I.B )

      Anybidy in trouble hasnt been on a golf course in a while.

      Repo man has been active for quite a while now David….

      Individual gets into financial trouble ? He or she is castigated , left oyt in the cold & cast aside…

      Banks grt in trouble ? Bailed out , no responsibility , no investigations…life goes on…..

      people are worth a lot mire than villainous banking fraternity ( see numerous headlines from across the world regarding fixing rates & fines )

      Remember folks…fines are jyst the cost of doing business

      sorry about spelling , phone wont let me correct.

      have a nice day

      put you & your family first

      RR6 Barry

  3. Grey Fox

    We are now at the point where the tyre hits the road! I ave a further comment but it will have to wait until later, I have a meeting with the Bank Manager….

  4. It’s all a myth they have no money. Did they eat It didn’t give It to the banks? Likely buried around the coast in a 8 bed room house If not here In Bulgaria Spain ? ,

  5. Pat Flannery

    You are saying that “vulture funds” are taking advantage of the fact that “exiting banks” are unwilling to accept the social disapprobation of evicting its defaulting borrowers, that these banks can realize the full value of their loans (in your example €40,000) if they are willing to proceed with evicting defaulting borrowers.

    How else could these “vulture funds” make 100% profit in three years unless Irish property values double with that time?

    You are therefore either saying that “exiting banks” (whoever they are) are leaving 50% on the table or you are predicting that Irish property values will double in the next three years.

    Which is it?

    • To use David’s example of a mortgage of €80,000 – I worked out on my mortgage excel spreadsheet that a 20 year loan of €80,000 taken out at the beginning of 2006 at 5%, would now be around €55,000.
      So the borrower would only own €15,000 if the home sold for €40,000. Obviously this ignores the issue of borrowers being in default and we have no idea how much these loans in arrears would be now worth (i.e how much the banks are charging them for having a defaulting loan). Clearly the banks will be hoping for a further 15% increase of home prices this year. If that were the case, the example of the €40,000 home would be worth €46,000 in 1 years time and the loan would be €51,000. Unfortunately the banks don’t issue debt with a longer term to pay off this unsustainable debt of shorter terms.

  6. Thanks for this ‘feel-good’ story David, brightened up my day.

    Neither a borrower nor a lender be.

  7. douglaskastle

    I feel very mixed about this. It is a shame that people might be forced to suffer, but I think it is important that the message get across that buying a house on the back of bank credit carries risk, and if you get on the wrong side of that risk, you’ll suffer. The message is less for those people currently going to get bitch slapped, but more for everybody else. Oh look it can go bad and that does happen.

    Sadly this is an idealised view, banks haven’t being pursuing repossessions in any significant way. Because a) the government asked them not too b) it looks bad kicking families out of their homes c) they would have to realise the actual loss on the properties (and a multitude of other reasons too I’m sure).

    All that being said, I think that even if all these bad debts were wound up correctly by the bank and the message went out to the general populace, it would be missed or ignored. We have such an amnesia when it comes to property. You just had to see those people queuing up for houses in Swords recently to see that nothing has changed. The media and the real estate agents in that case have a lot to answer for, I’m sure they were wetting themselves with the coverage that got.

  8. GF

    I need to ask a question. What amnesia is everyone talking about? Everyone repeatedly mentions how stupid the Irish people are for wanting to own their own home – that they learnt nothing from the boom, that they will make the same mistakes again.

    If you are talking about idiot investors who bought 16 buy-to-lets then yes, there will always be those types of investors, always, nothing to do with property; they will just react to any carrot of immense profit that requires no work.

    But I need a home for my family. The lack of security I have renting keeps me awake at night. The rent is so expensive that saving for a deposit will take us three years (and that is a 10% deposit, they are talking about increasing that now). I work in Dublin so I can’t buy in some cheap location, I will buy a property that is worthless crap but it will cost me a fortune. But I want to spend time with my family; I need to be relatively close to work so I have some aspect of a life. A simple, badly built, two and a half bedroom house is going to cost me €300,000.00 but I will need €36k to cover solicitors, stamp duty, etc.

    I need a deposit of €36k just to live within 1 hour of my work place and give a small tiny garden to my kids.

    My wife is due to have our child in May next year, when our one-year lease is up on a €1,400 a month rental property, where for the last three months the landlord’s agency will not fix the underfloor heating in the bathroom or the second oven (there is no grill in case you think needing two ovens sounds needy, and when we moved in we were told both ovens worked).

    He can double our rent if he so wants in May next year. He does not have to fix anything in the flat. People tell me to fight the landlord, but if we threaten to withhold our rent he can kick us out or change the locks. It is easier to fight this system when you do not have children, but can you take that risk with a new born?

    At any time he can kick us out, or raise the rent to extortionist levels (not that €1,400 a month is not already extortion when the average wage is €34k). But worse he can ignore problems for as long as he wants as there is no recourse for the tenant, there is no protection of the tenant.

    So I desperately need to own the place my family lives, because no one gives a damn about how renters are left with no rights or security. And I do mean no one. People type a lot of concerns, but no one sends emails to TD’s or marches on the streets. Renters in this country are screwed, and that will be forever, this country only protects property owners.

    So I am one of those people who will do and pay ANYTHING to get my family out of renting. I will do anything to remove this insecurity and feeling of being a second class citizen (as a tiny example: we were not allowed to join the residence association website because we are only tenants – “Tenants are NOT WELCOME” exact copy of the font size and capitalisation).

    Please tell me again how I have amnesia.

    • douglaskastle

      An excellent point, and one I find myself in. A baby on the way, stuck in rented accommodation and we just dodged a bullet when our rental came up for review they didn’t put it up, but I had sleepless nights that they would.

      You are dead right, you are not getting any younger and the rental rights here are crap.

      But let me ask you this, what happens if you go all out, doing everything you can to get that house (ANYTHING!), what happens, hypothetically, when the ass falls out of the market and you find yourself in negative equity struggling to pay the mortgage? Have you considered that, do you consider that in whether or not you buy a property? If you do and you take on that risk in full knowledge, then I wish you all the best.

      In the main I don’t think people think it is going to happen to them, bizarrely this is in the presence of living through the effects of a recession and years of austerity in very recent memory. That is willful amnesia. To be fair anybody who is reading or contributing to this forum probably doesn’t think like this in the first place.

      • GF

        Hi douglaskastle

        If I go all-out and do ANYTHING I can to buy my own home to protect my family it is because I prefer that insecurity to the one I am currently enveloped in.

        Currently I am at the whim of someone I have no name or address for. The agent tells me X or Y and I am left wondering. I have no idea what his/her next move will be, rent increase or sell the place. Every month I pay €1,400 to live there and I lose the entire €1,400.

        If I own somewhere, my destiny and security is in my hands. A mortgage of €300k over 25 years would be roughly €1,675 per month, of which in the first month €1,125 would be lost in interest. That means I have lost €275 less than paying rent. And each monthly repayment makes the amount of interest I pay reduce, while with renting each passing month makes it more likely my rent will increase.

        If I buy somewhere, even if it drops in value by 50%, and I can still make the payments I am better off than renting. I am perceived to have a vested interest in society unlike when I rent (in this Irish society). People will print articles in papers and march on streets if a family is evited from their family home (not so much if they are renting).

        €1400 a month rents me a two-bedroom apartment where I continually await rent increases and have to bend on knee in the hope that something as simple as heating might be fixed within a three month period.

        I wish to be master of my own destiny.

        And from the last seven years I can count in the hundreds how many people have been evicted (when they own the home). But the tens of thousands that have been kicked out of rented accommodation remain unreported.

        Even if I buy a place at €300k and it drops to €3 it looks like I will not have my home reprocessed in this country once I own it and “engage” with the banks.

        I will pay ANYTHING to get out of this trap.

        • douglaskastle

          Hi GF

          I feel your pain, and more than understand the frustration. It doesn’t end with renting. We went sale agreed on a house back in May, we haven’t closed and can’t get any communications from the current owners, it is all controlled via the real estate agent, who I don’t know if we can trust a word he said.

          However if I can speak to your “desperate energy”, this is the problem with the system. People aren’t able to be objective when they are trying to buy a home. They forget it is also an asset and may not be good value for money. Not all rent is bad rent. Ask people who bought a house and found the value falling year on year more than you are currently paying year on year. It happened, probably for 3/4 years of the past 6 years in Ireland. It is just in the past year or so that that trend in beginning to invert, but for how long? You speak of being a master of your own destiny, and you believe you can support yourself, based on your current situation. What if the situation changes? And what are the chances of it changing? Pretty high in my book. Nothing in the inherent system has been fixed, bizarrely the non reform of the rental sector is one of those things, which leaves some one like you insecure and is ready to do ANYTHING to buy a house.

          To my mind what we are observing, again, is a mass example of the game theory concept, the prisoner’s dilemma. Particularity when it comes to buying houses, we outbid other people who are also in the same situation as us. We don’t know what they are going to do so we maximise our position (credit etc) thinking well it is only little old me. Guess what every body thinks that and you just end up driving up the prices for every one, everyone loses.

          However I hate renting, I have been doing it for 16 years and I hate the feeling you are ultimately living on a whim, sometimes I think I would do ANYTHING to get out, you just have to be prepared to pay the price.

          • GF

            Hi again douglaskastle

            I agree that nothing is certain, and I am no more confident about my financial position then the next person on the street.

            But I did notice something during this financial meltdown. The people who owned their homes, no matter how much negative equity and how much arrears built up are still in them. Effectively living rent free and NOT homeless.

            If on the other hand this happened while you were renting once you missed one or two rents you would be out on your ear. Homeless but nothing to show for all that rent you paid.

            I get your point, if the floor dropped out of the market you could end up in a position of No Home, AND Owing The Difference of (for example) €100k.

            But no one seems to ever be evicted, I think only 172 homes were reprocessed in 2013.

            There is something like 14,000 buy-to-lets over 700 days in arrears. These are not even principle private residences and they are not being reprocessed.

            700 days of not paying a mortgage or rent and you still get to live there? Put €500 into the mortgage every two months or so and that is that, you look pretty safe to me.

            Renting they would have you out in two months.

            In this regard I would be willing to pay ANYTHING. But remember the most I can pay is how much the bank will lend me. But as you stated earlier most people on this site know their stuff, I work in the Finance world and understand when I loan is precariously close to my own ruin, but I would weigh up the odds and make my decision so that my kids have a security of tenancy in owning they don’t have in renting.

            Lastly, I think €300k for a property that likely is worth nothing (due to quality, size, design, etc.) annoys the hell out of me. But having a landlord that will not fix the heating annoys me more.

            PS – I like the term Desperate Energy. It reflects very accurately how I feel currently. And if I have to wait three years before I can build up a deposit to buy a house I wonder where the Desperate Energy might go, or what it might turn into?

    • Grey Fox

      Spot on! There is no incentive to rent in Ireland, there is no Social Housing Policy from Government, if one wants security, one has to buy (well Traditionally anyway) but now that the Financial Institutions hold the Veto of literally everything, (by that I mean the boom, bust cycle) even the most careful home owner can be dispossessed. It’s time for a serious rethink of the entire financial system because this is just not working. We are now involving a new generation of young people who are essentially, more meat for the financial grinder, to be allowed pay for a mortgage for five or ten years until the next Bank induced crisis dispossesses a large segment of those young people, lets not forget that while the crisis for the “professional” classes is to the fore in this article, there are 126,000 Principle Private Residences (family homes) in distress and that is, on the low side, potentially 400,000 people affected, or 10% of the population. Our government is more interested in crony, stroke politics than providing a coherent plan to address one of the many elephants in the room. Maybe it is time for a people driven initiative, absent any government intervention.

    • michaelcoughlan

      Hi,

      You might be able to get out of your problem this way. Buy this site on the south circular road or one like it;

      http://www.myhome.ie/residential/brochure/canal-view-rear-of-171-south-circular-road-south-circular-road-dublin-8/2895257

      Get a builder to build the house. The developed value should be more than the construction cost and site acquisition cost which means you wouldn’t have to save a deposit as the final developed value will be at least 10 to 15% more than the mortgage.

      Hope this helps.

      Michael.

    • LKSteve

      @GF. Sitting here in Brisbane Australia, the sun shining, relaxing before I start my day. Property here is expensive too. We scratched & scraped for 8 years to put a deposit together, finally buying our first home. We are three years into a 30 year mortgage but the property has increased quite a bit. Our mortgage payments have fallen quite a but too, more interest rate related than any thing else but we will take it. We bought a 50 year old house with a bit of work to do but it’s been good living in our own digs. Keep your dream alive. Owning has been worth the struggles for us. Ireland is a terrible mess though mate, would you not think about transplanting your family to a country that has proper government and not a bunch of goons? Best wishes for the future.

      • DB4545

        I’m glad you’re doing well in sunny Oz however looking at house prices in Brisbane and Perth relative to wage rates reminds me of the bubble that happened on this much smaller Island.

      • douglaskastle

        Ugh, moved back from Oz last year after 12 years, now that is a market that is crazy. We were in Sydney, half the suburbs in the million dollar range. I was screaming bubble, like I was in Dublin back in 1999, my simple question is, where is the money coming from? Overseas, China … (this is Sydney Melbourne, I can’t speak for Brisbane or the rest) the first time buyers in that market and then some are so priced out, a failure of a government to balance foreign investment with basic living needs like home owner ship and security. If there was ever a country that was Irish and obsessed with property that is not actually Ireland, it is Australia.

        I may be simplistic, but even using a 30 year mortgage as a justification is wrong. I am 38, I have been told I can only get a 27 year mortgage, I am already behind the game. It reminds me of the movie Unforgiven

        It’s a hell of a thing, killin’ a man. Take away all he’s got, and all he’s ever gonna have.

        That is a mortgage, at least the way the banks are running it

        • DB4545

          Thirty million people on a gigantic Island with huge natural resources and land resources (even if you limit development land to the habitable coastal regions) and million dollar homes in fairly pedestrian suburbs. You’re talking about timber frame homes that have a build cost of 150K to 250K Australian dollars so the site value is estimated at 750K to 850K? And everyone in the industry is talking it up just like this little Island in 2007. You made the right call there!

    • juniorjb

      Hello GF. Same situation as yourself, I have also concluded that it is the only realistic option over the long term and barring the unforeseen I believe it will ultimately do more for your financial security than almost anything else you can do. That last quote from the resident’s association says it all: you’re being preyed on by a dysfunctional system and can expect no sympathy from a society that so readily characterizes renters as ne’er-do-wells and fools, renters who are productive members of society who have made many of those who disdain them wealthy. It’s a corrupting attitude that hardens the moral sensibilities of those who indulge it. Ireland has always suffered from narrow-minded self-regard, allowing itself to abuse those who fall outside the circle.
      That said, I do believe it is illegal for your landlord to change the locks, God forbid that it comes to that. The haphazard arrangement that is the Irish rental system occasionally works both ways. Hope that helps a little bit.

    • Deco

      GF.

      There are two systemic problems.

      Lack of residential building in Dublin. [ State policy is designed currently to “engineer” a shortage. It is called “bottle-necking” the housing market. NAMA holding property from the market. Planning is opposed to allowing higher developments (even though other cities regard this as normal).

      Lack of opportunities outside Dublin, apart from some sectors in Cork or Galway. There are empty apartments in Waterford and Limerick without a bidder.

      Despite all the “media” outcry concerning state bureaucracy decentralization, I always believed that it would help improve the housing crisis in Dublin. However, the state employees themselves did not want to move. And the plan was dispersal rather than relocation to a significant centre like somewhere like Athlone or Portlaoise.

      By the way, significant proportions of the young rural population, and the ambitious kids from poorer urban estates have already got out and left for Western Canada and Australia, where they get more money. Most of them are involved in a savings surge so that they will be able to afford a future in Ireland.

      The odd thing is…the consensus is that the banks need to be “saved”. So the entire state policy framework is one large punt on the banks. A bit like German military strategy in 1918. It could work. And it could just as easily fail.

  9. CallerNJ

    I’m sick of all the anti-professional class BS on these comments. The professional classes are just people who are doing a job and contributing to society, yes some are good with “reclassifying” their assets than others but some are also dimwits. It’s no different than local sme owners like some shop keepers or farmers or the like.
    McWilliams himself is a professional.
    We need professionals and I don’t like the virulent abuse of professionals when in general they did not do anything wrong here.
    Some of you people are using the example of the cute few to stain whole sections of society. You should be ashamed at your arguments because they belong in IS.
    What do these commentors want here, the Kymer Rouge? That went great didn’t it? Think before you kill your own.

    • Mike Lucey

      I have no doubt that the Irish begrudgery gene will kick in again when ‘professionals’ are kicked out of their homes!

      However the ‘professionals’ are quite good at spotting t’s not crossed and i’s not dotted and capable of turning these to their advantage.

      • I can’t see it happening, I can’t see them being thrown out on the streets en masse, and it’s better for society if it doesn’t happen.

        I hope the wannabee landlords have learned their lesson though.

        Probably not.

        • DB4545

          Which society is it better for Adam? Maybe John Ball had it right in the peasants revolt of 1381 “When Adam delved and Eve span who was then the gentleman?

    • juniorjb

      It’s probably not that straightforward, agreed. A strong, independent middle class is an asset and it has often been the origin of the enlightened and articulate figures who have worked for positive change. They will no doubt be a part of any future solution. However, it is fair to say that recently many of the Irish middle classes have not covered themselves in glory – rather than resisting the obviously unsustainable and engineered bubble they declared that the devil could take the hindmost and rowed in behind the big boys to do a bit of two-fisted grabbing of their own. Granted they were sold a pup too, but it doesn’t look too good if your part in the con was as the willfully uninquisitive mark. Most fraudsters rely on that little bit of unscrupulousness to draw their victims in. I’ve lost count of the number of older couples who now admit that their buy-to-let dabbling forced their own children out of the market. I suppose the abuse arises from the need people have to see some self-examination and contrition, hence the focus on lessons being learned and indeed some form of penalty as a necessary part of that. But I expect it is also recognized that prescribing bankruptcy en masse is disproportionate and counter-productive.

  10. michaelcoughlan

    Hi,

    Stop stating the obvious and go back to your far more important work on explaining to your readership that the reason the world is in the shit hole it is (with the newly arrived former Irish middle classes) is because the return to capital as opposed to the return to labour is so lopsided it is accurate to say the western world’s economic system is more accurately described as fascist than capitalist.

    This video says it better than I can a real live capitalist saying that reducing taxes on the stupendously rich is a BAAAAAAADDDDDDDDD idea for the middle and working classes including the country and ultimately for the 1% themselves who in any event can’t be convinced that their own behavior will ensure their own destruction due to their narcissistic behavior.

    https://www.youtube.com/watch?v=CKCvf8E7V1g

    Sorry to be a bit patronizing but your talent is wasted describing the status quo when you alone amongst all the other Irish based classically trained economists have been highlighting the real source of most of what has been going wrong and irritatingly you don’t seem to see how significant your own contribution is in this regard.

    Michael.

  11. douglaskastle

    Hi again GF

    Ha ha, I am frustrated with the system/banks because they won’t turf out people so that it puts more stock back on the market and thus reduce the price and make it more affordable. You see the system is banjaxed, but view it as (one of the many) inefficiencies in the system that can be exploited. If you get into a house the banks don’t kick you out, hence a house, unlike the more volatile rental space. I think my way is idealised and probably naive, yours in realistic and will probably the way it will work, sigh, I salute you sir and a little depressed.

    • GF

      Hi again douglaskastle

      I too wish it truly was not this way. If all those buy-to-lets in 700 days arrears were released back onto the market maybe that would create a more realistic pricing point for a roof over our heads.

      My problem is I agree with you 100%, but life changes, I am now 43, I can get a 20 year mortgage at best.

      And what annoys me most about myself right now is what I am proposing to do goes against everything I believe in, but once kids get involved you start thinking more family-centric-selfish (if that makes sense).

      And what annoys me even more about myself right now is the fact that once I buy a place I bet I stop campaigning to get better rights for tenants, I feel I will be to knackered and exhausted by that stage.

      This country wears you down over time. Had to go into the hospital last night for an emergency scan – we arrived at 5.15pm and were seen at 11.45pm. But I have heard this problem 1 million times and if all those people cannot fix the medical service, what point is there in me doing anything.

      I will just buy a house for whatever price you can pull together and admit defeat.

      Cheers.

  12. pablos

    It doesn’t give me a warm fuzzy feeling to see these people getting into trouble like this, why should they suffer more than anyone else? Why doesn’t the Govt. purchase these knock-down loans and hand them over to their banks and continue them in the normal way? Letting the vulture capitalists and the repo-men loose on any section of the public is a bad thing for all of us.

    • Pat Flannery

      “Letting the vulture capitalists and the repo-men loose on any section of the public”. That is the best summation of what government does in Ireland I have heard so far. Remember we are governed by political parties which are essentially gangs who in turn sell us off to other gangs.

  13. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/10/6_John_Embry_-_We_Are_Nearing_A_Violent_Change_In_The_Markets.html

    Lies and deceit are the tools of government. Propaganda is issued and printed for digestion by the masses. This posting is not directly on topic. However everyone should look long and hard at the real economic prospects and that includes each individual on their own account.

    As a professional Realtor for 32 years I always gave the following advice to this question. “When is a good time to buy a house?”
    The answer, When you are ready and able.”

    That is buy within your capacity to service the costs of ownership. The Mortgage and taxes are just one aspect. Maintenance on a property is expensive and must be considered. 32% of gross income was considered the max for mortgage and tax payments. 40% the max for total debt payments paid (ie. other loans.)

    If you cannot see your way clear to handle these payments for at least the next 5 years then do not do it.

    In the meantime read the attached and consider that the US is in bad shape and Europe possibly worse. Job security is number one when it comes to buying a house. Number two is stability of location of said job. You do not need a job transfer just after buying a property. Roots torn out of the ground to not produce a healthy plant.

    • Colin

      Nothing undermines your financial judgement more, than the sight of your neighbour getting rich.

      • Octavio

        Sadly that’s one of the sentiments, which is so deeply embedded in the Irish psyche, which explains why the masses will never do anything constructive to combat the current status quo. We have relatively open hearts and are therefore welcomed the world over but relatively closed minds to see the bigger picture. Half of us live in towns and villages, the other half in cities, yet very few of us live with a sense of real community. In fact, I don’t think ancient Ireland is with O’Leary in the grave, I’m not sure we ever had it in the first place.

  14. Wills

    In D’s analysis above the bank and its role raises in my mind the following questions;
    the bank’s funding of the asset 80,000 euro is key. This 80,000 is not the banks debt. It is the debt of the loanee. The banks treat the 80,000 as a business opportunity to raise interest revenue or cash in on the property if the loanee cannot meet their obligation on the debt the banks sell the property for 40,000. The banks do not lose 40,000. The banks GAIN 40,000. The debt the banks provided the loanee was indeed invented out of this through fractional reserve banking. The idea the banks lose 40,000 is precisely the wool the banks pull over peoples eyes and fool the public over and over and over. The banks never gave the loanee 80,000 in the first place. The banks simply provided the opportunity to the loanee to make a debt of 80,000. The loanee repaying the banks the 80,000 is a con on the loanee and the banks laughing all the way to the bank! The bank makes the 80,000 out of the loanee by the loanee opening the debt up for 80,000. The banks simply provide the opportunity to the loanee to pay the bank 80,000 that never existed. It is a fantasy. And if the banks get back 40,000 they are up 40,000 NOT down 40,000.

    • Adelaide

      For money to function properly as a medium of exchange it must adhere to a zero-sum balance. An amount of credit created out of thin air to be lent out must be returned and that amount returned to thin air, ie. deleted from existence. The pursuit of interest by banks is the antithesis of a functioning sound money. Plus, any amount of credit which is not returned to thin air is stuck in permanent existence, so as more bad loans are defaulted on, the more ‘unnecessary’ money accumulates in the market place, the more the purchasing power of money becomes debased and ultimately becomes worthless. The present banking system’s modus operandi is systemically destroying the value of money.
      A 2012 survey showed 83% of British MPs believed it was the government who created money, which is then channelled through the banks. Unbelievable buffoons. At least 17% weren’t ignoramuses. I dread to think what percentage of our Irish TDs would pass. 0%? 1%?

      • Wills

        Interesting analysis.

        This is the point the 80,000 in D’s article is not money. It is not even currency or funny money.

        It is but a ledger entry with the arm of an enforcement agency wielding a club behind the ledger.

        Banks are agencies run by the same elites which award the licenses to themselves to make debt which they then run their thieving system with.

        We need to be clear on the starting point of the system we are in if anything is to be of any value.

  15. Adelaide

    GF
    As much as I dislike renting I don’t feel renting is dead money. Unfortunately, a bad landlord can make renting a living nightmare. But my point is I would not dream of buying a house where I presently live, whereas I don’t mind renting in the area. The thought of buying an over-priced shoe-box in this yucky area would be utterly depressing, plus I would use up our life savings on a deposit, that means no spare cash while living PERMANENTLY in an area that we only tolerate on the basis we are transient renters. We would prefer to keep our life savings which gives us the freedom to move to other areas/opportunities etc. By my calculations the compound repayments on say a new 375k lego house in a crummy part of Crumlin equals a lifetime’s rent.
    Anyway, remember a landlord can only evict you if you voluntarily leave. Only a bailiff can legally evict you, the process takes two years, know your rights.

  16. Adelaide

    ps new mortgage cap
    Multiple analysis of housing markets historically show beyond doubt that average house prices are solely determined by the amount of credit available. If this proposed 3.5xincome cap comes into effect then average house prices in Ireland will be priced accordingly. Daft.ie are calculating the price to be 200k. But that’s still way above the 35k average salary, perhaps they mean 200k for a couple.

  17. E. Kavanagh

    Well in some ways this is an opportunity. Taking McWilliams example; if the loan buyer paid €20K and is looking for a 30% profit over 3-years, then an offer of €24K now should be sufficient to buy back that €40K debt.

    Here in California most loan are non-recourse i.e. a lender only gets to take back the property, and can’t go after the borrower for any deficit. Had the government been any good they’d have retrospectively done that for any loans they controlled. People have suffered enough.

  18. DarraghD

    I’m not really seeing a crisis here I have to say. Dentist borrows 40K from bank, bank can’t get it back and dentist man hasn’t made a repayment on the loan since 2010.

    If it is an unsecured loan, then Repo man has to go to court to get a judgement. If the defendant has not the means to repay, then enforcement is pointless and ultimately loss making. Investigating whether the defendant has the means to repay or not, will also eat into the margin on the “Repo” job.

    Even if the loan is secured, a judgement is necessary and as we all know in this country, a judgement is expensive and also risky. What if it turns out on the day that the loan paperwork isn’t in order, you risk the loan and the case to secure a judgement in respect of the loan, getting flung out the court window!

    You’d have to wonder have the Irish banks flogged these loans on for 5K and the likes, a small fraction of the original loan value, in the full knowledge that in many cases, the file is incomplete, lost, the debtor uncontactable, debtor has gone back to Poland, debtor has committed suicide, signature missing on the loan document, loan taken out by him and his wife and they have now divorced, etc, etc, etc.

    I think anyone coming into this country after buying a bad loan for 5K and reckoning that they can recover 20K or 40K or whatever was borrowed to begin with, would want to have their head examined!

  19. [...] invested in property. In fact a large cohort of our politicians are property speculators/land lords.The professional classes as a whole invested heavily in property during the bubble as a pension option. These legal, accounting and medical professionals, avoiding [...]

  20. [...] in property. In fact a large cohort of our politicians are property speculators/land lords. The professional classes as a whole invested heavily in property during the bubble as a pension option. These legal, accounting and medical professionals, avoiding [...]

You must log in to post a comment.
× Hide comments