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New 0% Mortgages: The Fools Mortgage?

mairteenpak

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Apr 21, 2008
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Some Developers, are devising new ways, for Buyers to purchase expensive apartments.

With the reluctance of the Banks to lend 7 times earnings, to borrowers, to purchase apartments, any longer and instead simply lending up to 5 times earnings, the shortfall in purchasing power, will be made up by the Developers, lending the balance required, of up to 30% of the purchase price, @0% interest for seven years, by such time the builders, say they confidently envisage, the property value, will exceed the total price, enabling the buyer to remortgage, for the outstanding sum, or to trade the property.

Am I the only one who hears the alarm bells.

1) Who would pay more for a property than a bank would lend against it?
2) Do the Builders not need a Banking licence to do this since they would hold a second charge on the property?
3) Should Builders be allowed to lend in this fashion?


Are there fool's out there who would buy such properties as opposed to waiting for the fire sale that must come?

If you cant afford to pay the interest on the total cost of the property you can't afford the property.

Is it really just a device, ( using smoke and mirrors) to allow banks to lend 100% funding to purchasers who can't afford to buy?
 


digoutday

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Its going to be very interesting to see the moves from Zanu-FF regarding propping up their buddies in the building business. I have noticed that yer man from the CIF is looking more and more tired as he makes his appeals to be bailed out by the masters of corruption and economic mismanagement.

The only way to solve this problem is to let some of the foolish builders and banks go to the wall.
 

Aindriu

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mairteenpak said:
Is it really just a device, ( using smoke and mirrors) to allow banks to lend 100% funding to purchasers who can't afford to buy?
More like Bertie's famous 'smoke and daggers' - the smoke to blind you into what you are agreeing to and the daggers to stab you in the back when you suddenly find you can't afford it anymore.
 

Supermanpolitician

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This offer should send alarm bells ringing.

They want to sell the property, but they don't want to face the harsh reality of the market. People can't afford to pay the price. So instead they are stumping up the price of the difference between what you need and what the banks are willing to offer. Theoretically they will only get caught for the interest while the purchaser still gets to repay the prniciple of the loan. SOunds nice. Until you appreciate that the price is set by the person offering the loan. It simply does not make sense. It's a grasping at straws measure. Whoever thought of it has no grasp of economics and is relying on having enough stupid people come in and take up the offer.

Yes indeed. A fools's mortgage.
 

wysiwyg

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Jun 29, 2008
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Yup, people should go ask the developer if he's willing to "loan" them say.. 50 grand... if he says ok, just say, no, take 50 grand off the price... actually.. make it 100 grand. About time they faced up to the mess they were involved (amongst others) in creating
 

Supermanpolitician

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Actually a couple of interesting points.

1. In order to offer a loan you must be approved by the financial regulator.
There was a case a few years back where (and I could be corrected on this) I think a trade union had a svaings scheme which then allowed them to give out loans to members. Illegal and was s hut down, even though there was no illegal intention on their part.

2. Tom Parlon was advocating government backing of the CIF. Surely government backing of industry is the very antithesis of PD ideology. Not a huge fan of government intervention myself except where it is areas which are essential such as health, education and infrastructure. Government has no business interferring with industry.

3. House prices are too high. Facing the reality now is better in the long run. If you try to prop things up now, they will fall eventually. If you let them reach their natural level on their own, then they will rise back up on their own.

4. The housing market on its own is not the economy. No industry on its own will make an economy. Others tried to warn them. They ignored it and they are still ignoring it. If people don't have other jobs to pay the mortgage, then why do we need more houses.

5. There are sixty tousand unoccupied units in the country. Old school economics. Supply has outstripped demand. Something has to buckle.

6. Other areas of the economy are surviving, especially higher skilled value added areas. They will see this as an opportunity to buy larger houses formerly occupied by construction workers.
 

Aindriu

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Supermanpolitician said:
The housing market on its own is not the economy. No industry on its own will make an economy. Others tried to warn them. They ignored it and they are still ignoring it. If people don't have other jobs to pay the mortgage, then why do we need more houses.
I fully agree. The problem is that no FF TD believes that. They have built an economy on people buying and selling houses and thinking they had become rich. Anyone who voted FF last year only have themselves to blame if they are in the pooh now.
 

Supermanpolitician

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Aindriu said:
Supermanpolitician said:
The housing market on its own is not the economy. No industry on its own will make an economy. Others tried to warn them. They ignored it and they are still ignoring it. If people don't have other jobs to pay the mortgage, then why do we need more houses.
I fully agree. The problem is that no FF TD believes that. They have built an economy on people buying and selling houses and thinking they had become rich. Anyone who voted FF last year only have themselves to blame if they are in the pooh now.
Totally agree. I was at the home of a very wealthy FF supporter last year who believed exactly that. She said that McWilliams was trying to talk the housing market into a depression. I tried to point outthat things were inbalanced but she put her fingers in her ears and went la la la la la la...a bit like Biffo.
 

smitchy2

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Sean Ardagh of FF said that the problem with the economy was primarily due to the drop in houses been built together with the international credit squeeze. He agreed could FF take the credit for the property boom with attractive tax incentives but said that FF are not responsible in anyway for the current crash. Amazing.
 

Supermanpolitician

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digoutday said:
HanleyS said:
The loans currently on offer are from Simply Mortgages? According to The Pin.
Desperate measure by them.....prices need to fall. In the next 6 weeks there will be no activity in the market as people wait and see, its now a case of who can survive the next 6 weeks.
Indeed a desparate measure. in that case the house will still be 100% mortgaged. The other banks will only allow an 80% mortgage so if you have already received 20% they will only allocate 60%.
If they ar offering a full 100% I bet theinterest rates are cruel. Have they not heard of the credit crunch?
 

carlovian

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Heard Tom Parlon on the radio saying the problem was that first-time buyers couldnt get the 60,000 deposit needed to buy the houses for 300,000 and he suggested the government through local authorities should step in.

So the government MUST keep house prices artificially high.

What happened to the PD free market ?

if you cant sell the houses lads, heres a suggestion

LOWER THE PRICES !!!
 

digoutday

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The whole is issue here is confidence in the market. Confidence is gone. Confidence takes time to build up. No measure by the government will bring back confidence to the market.

The government cannot come up with a scheme to sort this as the goverment has no money.

Prices will fall, its pure and simple.
 

Supermanpolitician

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seabhcan said:
Say you take this offer and the building company goes belly up in the next 7 years... Who owns the debt?
You still have to repay the debt. Liquidators will see to that.
 

Piaras

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Oct 20, 2004
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Another point to note is the fact that while they say it is 0% interest loan, the borrower has to pay 15% of the market value of the house back in 7 years time not the amount borrowed. So the builders are shifting stock they need to get rid of now, they have no cash flow issue from themselves (i.e. no money changes hands on their part), the get 80-85% of the value of the house now and in effect retain ownership of the remainder for seven years.

In regard to the housing market and people's comments of how FF have made a mess of things, let me point out a few things, FF did not become greedy and speculate on land prices in areas around cities and towns and pay big sums of money for these lands, hence driving up the price of houses because of the base land costs. While I accept the fact a number of developers attached to FF there are also quite a few in FG too (one guy quoted in indo today who ran for locals last time out). The problem was accentuated by banks willing to lend 100% mortgages to people who didn't have the means to pay them off, purely based on the values going up. The problems within the housing market can be a very global issue and they are strongly tied to the availability of credit. Ireland are not the only country whose property market is seriously struggling. Spain, Italy and the US construction sectors have also ground to a halt with the Spanish and the UK's economy practically in reverse at this stage.

Criticism for what is a global downturn is very hard to put at the door of politicans (the converse in terms of praise for a global boom is also true) but the real question and test will be to see what the reaction to curb the downturn as best possible so that it can be dealt with and the country left in good shape when the downturn levels off. Anyway the real issue for the Irish economy is the high interest rates and we should all hope for more bad news from Germany so the rate will drop.
 

Munion

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Aug 17, 2006
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People would be mad to accept this. When I heard it on the radio this morning my first thought was that it was illegal.

Builders need cash like a junkie needs heroin. They'll sell their own mothers for the stuff.
 

MarD

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Jul 26, 2007
Messages
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It is amusing that the construction industry thinks the problem is that the banks won't lend enough money.

One of the developers on the radio this morning when asked about lowering the price said that they were selling at cost! They should have put a laughter track to that one.

These snake oil schemes almost imply by their very nature that the properties are 30% overvalued.
 

mairteenpak

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Apr 21, 2008
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196
Is there a gift tax liability on an interest free loan? 60K @ 6% compound for seven years tots up to 30K in interest.
 


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