tag:blogger.com,1999:blog-2826531655042170344.post3989611266975939185..comments2024-03-26T11:29:52.986+00:00Comments on Economic Incentives: Jumbo Mortgages. Take Two.Seamushttp://www.blogger.com/profile/15679299530222667673noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2826531655042170344.post-86282973367273869222011-08-19T13:38:53.143+01:002011-08-19T13:38:53.143+01:00Seamus, the issue I have is that a lot of investor...Seamus, the issue I have is that a lot of investors did buy investment properties at that yield. The trouble is a lot of them didn't care about yield because their interest was speculative. In 2006 which, it could be argued, is just short of the absolute top of the market, 40% of new builds went to investors. We could have avoided a lot of problems with a hefty CGT on property as it would have reduced unsustainable demand. <br /><br />Even allowing for the tax advantages of offsetting the interest; interest only repayments are of value in a rising market because any capital repayments could, perhaps, be invested elsewhere. I don't think the benefits are so cashable in a falling market where the property is less than the outstanding loan secured on it. Interest is a viable business expense in other European countries and 75% tax offset is maybe lower than it is elsewhere. <br /><br />It would not surprise me to know that there are a large number of investors in the rental supply market with outstanding debts in excess of one million - given the way pricing in Dublin was at the end of the bubble period, it may even be conservative to limit the estimate at 10,000. Three apartments would have done it in many parts of the city. I just don't know that I really want to be socialising those losses per se. Not without a hefty quid pro quo anyway. <br /><br />I'd be interested to see what impact such a move would have on bank balance sheets as well. I don't see it being positive in the grand scheme of things.Treasahttp://www.treasalynch.com/blognoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-68591284949255261682011-08-19T13:12:24.648+01:002011-08-19T13:12:24.648+01:00"Not that be forced to do so is stopping us! ..."Not that be forced to do so is stopping us! "<br />Indeed and what else can we do? Ignoring the subject is not an option.yoganmahewnoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-85281377773288502872011-08-19T12:57:53.375+01:002011-08-19T12:57:53.375+01:00Hi yoganmahew,
Thanks for that. I just threw som...Hi yoganmahew,<br /><br />Thanks for that. I just threw some these thoughts togethe and may revise if I get a chance.<br /><br />1. This is undoubtedly true.<br /><br />2. I think there would be some BTL on tracker loans. PTSB are up to their necks in trackers so it's likely they issued some BTL trackers. I'm not sure about AIB and BOI though. <br /><br />I remember reports of PTSB BTL mortgage holders being moved from interest-only to repayment and not being happy about it. In Ireland, it actually makes sense to have an interest-only BTL mortgage as 75% of the interest cost can be offset against rent for income tax purposes.<br /><br />3. Looking at advertised rates this appears to be the case.<br /><br />4. If any investor bought an investment property with a yield of 2% they only have themselves to blame. Again I can remember reports in the papers working out the implicit subsidies landlords were providing their tenants because the mortgage repayments were far in excess of the rental income. <br /><br />I too agree that there are unlikely to be 10,000 €1 million plus mortgages out there. Whether there are 10,000 people who have such debts is very hard to know. It could be true, but like most of this debate for the past fortnight we're only guessing. Not that be forced to do so is stopping us!Seamus Coffeyhttp://economic-incentives.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-34631029161981966142011-08-19T12:42:10.899+01:002011-08-19T12:42:10.899+01:00There are a couple of points to note about investm...There are a couple of points to note about investment mortgages:<br />1. Stamp and deposit were often garnered by refinancing/topping up PPRs - so there is a double cost there.<br />2. Many were fixed initially interest only, but are being moved to repayment. The evidence for BTL trackers is limited.<br />3. An interest premium was paid initially for investment mortgages. This premium has anecdotally widened.<br />4. Gross yields during the peak were around 2% - this translated to a near negative real yield given running and financing costs - these were leveraged plays on capital appreciation.<br /><br />Having said all that, we simply don't know. The suspicion must be that we are being pushed the "PPRs aren't too bad" line so hard because BTL is simply awful. <br /><br />Personally, I think it is unlikely there are 10,000 individual mortgages in the 1-2 million range for single properties. I do, however, think it is likely that there are 10,000 individuals who have total mortgage debt in the range of 1-2 million with multiple properties. Many of these are not much different from what we have seen go into NAMA, so they are 'worth' maybe 30% of their outstanding value.yoganmahewnoreply@blogger.com