Read the full article here: https://www.independent.ie/business/personal-finance/your-personal-finance-questions-is-it-a-good-idea-for-my-mother-to-take-out-an-equity-release-loan/a302562723.html

ECB Hikes Interest Rates By 50bp To 2.5%

Concerns have been raised about increasing borrowing limits when supply remains low.

Households will suffer a double whammy next month, with higher mortgage rates and the latest wave of electricity and gas prices kicking in at the same time.

All the main energy companies are pushing up their prices from October.

These double-digit hikes are set to hit hard.

The combination of higher energy costs and increased mortgage rates mean some households are facing an extra €3,000 in payments.

And higher electricity prices, combined with gas or home-heating oil rises, means typical households will be shelling out an extra €2,000 a year.

Higher tracker mortgage rates will be implemented from the same month following the decision of the European Central Bank ( ECB) to hike its key lending rate by 0.75 percentage points to 1.25pc.

The bumper rate raise means tracker mortgage holders will be facing an additional €34 in higher payments for every €100,000 they owe, according to calculations by broker Joey Sheahan of MyMortgages.ie.

This is based on a tracker margin of 1pc over the ECB rate, with 15 years remaining. Over a year the extra cost amounts to €408.

Last month’s rise means the two rate rises will add an extra €800 a year for every €100,000 yet to be repaid.

This means that a family on a €200,000 mortgage will lead to repayments rising by more than €1,600 over a year.

The three main banks spared variable-rate customers from the ECB rise in July, but that is not expected to happen this time.

Variable-rate customers on a €200,000, 25-year mortgage, will face an additional €78 in monthly repayments if the full ECB rise is passed on. Over a year, this amounts to an extra €930 in mortgage costs.

Announcing the latest rate rise, ECB president Christine Lagarde failed to rule out another 0.75pc rise at the next meeting in October. She said the decision will be depend on the inflation rate.

Economist with Goodbody Stockbrokers, Dermot O’Leary, said the market is effectively now pricing in a refinancing rate at 2.75pc next year.

Daragh Cassidy of Bonkers.ie said: “The rate increase comes at a time of soaring energy bills, so is a real double whammy for households.”

He said consumers would question the wisdom of increasing rates when households are already dealing with soaring energy costs.

Gas and electricity bills have soared by over €2,000 a year over the past 18 months. “That’s the equivalent of an interest rate hike of 2pc already,” he said.

Price rises of between 20pc and 40pc come into effect on October 1 at Electric Ireland and SSE Airtricity. Bord Gáis Energy prices go up from October 2, with Energia prices rising from October 7.

Meanwhile, mortgage brokers have called on lenders to give home-buyers and switchers plenty of notice before higher fixed rates take effect.

This is because it is taking up to 12 weeks to effect a mortgage switch.

The rate people get is not the one they are approved for but the one at the point of mortgage drawdown.

Broker Michael Dowling said this meant people were missing out of lower mortgage rates as they have often gone up by the time they draw down their mortgages.

Martina Hennessy, of broker Doddl.ie, said banks need to take their own service levels into account when announcing rate rises as many of them are consistently outside the Central Bank response time for switcher applications.

Source: https://www.independent.ie/business/personal-finance/double-whammy-of-mortgage-and-energy-bill-hikes-to-cost-households-extra-3000-41974475.html

Our property finance expert answers your questions

I have been involved in property investment for years by way of a buy-to-let which I purchased in 2004. It has done quite well despite everything, but at this stage it’s almost impossible for me to make any return on it with the restrictions on rental income and rent pressure zones, which it is in. I’ve decided to sell up before the market flattens, but my question is what to do with the gain.
 

I anticipate around €186,000 and would very much like to look for property-related investment, possibly commercial but I’m not really sure. What is available for me?  

This is indeed a thorny topic. First things first, I assume your gain is net of Capital Gains Tax which will be payable on the uplift since 2004 and any sale price you achieve.

You also have obligations under the RTB toward tenants, and indeed, longer notice periods are being agreed through the agency at the moment, which will have to be cemented by the Oireachtas, but you should keep yourself abreast of these as they develop.

I know you remain interested in property as an investment vehicle, but wonder whether this is for sentimental or ‘gut instinct’ reasons, which can be an Irish nuance, or whether in fact you ought to be seeking the highest return across all asset classes, or a mix.
I asked Brendan Costello, of Galway-based Talk Financial about his recommendations for property investment. “Very few people still like property who don’t want to physically buy property,” he says. “Most just want out at this stage. The challenge for someone who wants to remain in the market but not in its current mix, is to access property funds on an insured basis. It’s a very slow market in recovery, with downward pressure on retail and commercial buildings as Covid put the market under serious pressure.”

He cites me the example of a pub which fetched €12.5m just before the pandemic hit, while the entire frontage of a nearby shopping centre with nearly 20 units, is currently pricing at €9.7m.

“If you don’t want to buy direct, and I would strongly dissuade from it at the moment given the heat in the market, what you’re buying into is a property fund in the likes of Irish Life or Zurich [insurance company] or buying into retail wholesale over the next four to six years as a passive investor, and there’s not much yield at all”.

Mr Costello adds that if ESG factors (environment, social and governance) are important to you, funding social housing, largely in the UK is also available through investment funds.
“A lack of government support has closed a number that were here such as Arena Capital partners which were identifying and financing secure long-term tenancies”.
As ever, this is an area where specific expert advice is strongly recommended from an independent financial broker, preferably.
 

First-time buyer here. I just want to ask if there’s a possibility of getting an approved joint mortgage for me and my husband if one of us has just been accepted to a job? Or do we need to wait six months to be approved?

I’m going to say it depends, because there’s no hard and fast rule laid down by lenders, or the Central Bank for this, however, good financial management along with the ‘prospects’ of applicants are all taken into account. I’ve seen people get over the line when they’re not yet permanent, because their qualifications and CV are such, that they’re bound to be a good risk.

Think of professionals like a doctor, or pharmacist, for instance. In addition, if they’re not looking for the full 90pc, and the property on which the loan is based is worth far more than the loan being requested, lenders aren’t so hard and fast on certain rules.
I don’t know your precise circumstances, but I’m going to assume that as first-time buyers you’re looking for the maximum loan available. Joey Sheehan, author of The Mortgage Coach agrees there is a ‘possibility and maybe a probability’ you won’t need to wait six months.

“If there is no probationary period then some banks would have no issue approving you once you can provide one payslip from the new employer on the basis that your husband has moved straight from a similar role with similar wages. If a probationary period applies, they may want him to complete it before they will advance funds, unless your husband is a higher earner and works as a professional or is state employed. Depending on your income it may determine if [the] bank would waive probation also, as if you are close enough to qualifying for the full loan on your own, they may waive completion of [the] probationary period.”

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

Q My wife has inherited a home with her two siblings. They have made the decision to sell it. We expect to have €200,000 in cash in six to nine months’ time. We have not been saving. She is self-employed and her salary fluctuates, but she has made a minimum of €50,000 in the last three years. I work as an engineer in a global software company and my salary is €90,000. I also take home €30,000 a year in bonus payments and shares. Can we use the €200,000 as our deposit, and still get a mortgage, even though we haven’t been saving?

A Yes, absolutely, you can use the €200,000 you are about to inherit as a deposit, is the answer from Joey Sheahan, head of credit at online broker MyMortgages.ie. If you have been paying rent, then the monthly rental payments will serve as proof to the lender of your ability to meet monthly mortgage repayments, he said. If you are not paying rent, then you have ample time, between now and when you receive the inheritance funds, to start saving now to be able to show the necessary savings record of six months to the mortgage provider, Mr Sheahan said.

Q My wife and I are currently insured under Vhi One Plan Extra. This plan has an annual cost of €1,646.78 each. She is aged 71 and I am 75. We are both relatively healthy and have full medical cards. Vhi Healthcare recently sent me an email saying that my plan is being replaced by a plan called Enhanced Care Complete 75. No details of this plan, or its cost, were provided by the health insurer. Could you recommend an alternative plan, or an alternative provider if necessary? We have been with Vhi Healthcare for almost 50 years now.

A The One Plan Extra scheme is one of the many plans that have now been retired by Vhi Healthcare. It covers up to semi-private in private hospitals with some refunds on eligible out-patient expenses, according to Dermot Goode of TotalHealthCover.ie. Before considering the alternative plan proposed by Vhi, which is the same cost as your existing plan at €1,641 per adult, Mr Goode said you should consider an alternative Vhi corporate plan called PMI 3613. This costs €1,340 per adult. He said this is an excellent scheme covering the same hospitals, subject to a small excess for each private hospital admission (€75 per claim). It includes excellent high-tech cardiac cover and higher refunds on eligible out-patient expenses with no excess to pay first, the broker said. If you are open to switching insurer, you could also consider the 4D Health 2 scheme from Irish Life Health at €1,351 each, or the Simply Connect scheme from Laya Healthcare at €1,361 each, Mr Goode said.

Q I contribute 25pc of my income towards my pension, which is with Irish Life. I’m fully conscious of how markets can fluctuate, particularly this year. That said, I am losing money at the moment, which is hard to accept. I wonder should I stop my contributions altogether or should I keep going? Any advice would be appreciated.

A Stock markets are volatile and will fluctuate up and down over time. They are particularly volatile at the moment given what is happening in the world. A long-term view is best, according to Joey Sheahan, director of MyLifeCover.ie. He said he would not worry about a loss like this in the short term, as it is inevitable that you will see losses for some of the years over, say, a 30 or 40-year period. When values fall in the market, that is the best time to buy as there is an opportunity to buy units at a lower level, which will hopefully recover to previous levels over time, the financial adviser said. Mr Sheahan said you should continue your contributions to your pension, on the basis that you are buying at a lower level than previous values. It is also important to review your risk profile and ensure that you are invested in the appropriate funds. For example, somebody with a high-risk appetite could invest in funds which could show much higher movements. This might include, say, a 20pc increase or decrease in values in a short period. Someone with a low-risk appetite could invest in lower-risk funds, which would have much smaller movements, maybe moving 3pc or 5pc up or down in a short period. Mr Sheahan recommends that you seek advice from a financial adviser before making any decision about your pension.

Source: https://www.independent.ie/business/personal-finance/can-an-inheritance-be-used-for-a-deposit-as-we-have-no-savings-41825924.html