Some ideas to get your foot on the housing ladder

Residential Tracker

Furthermore, Brendan, I don't see any financial institution linking payouts to residential property and investing the proceeds in equities, no matter what their views on the respective markets. It's just that kind of mismatch (promising payouts like fixed interest, but with the underlying investment in equities) that has caused so many of them so much grief (and worse) in the recent past.
 
Re: Residential Tracker

Don't forget it's in the interest of potential purchasers that house prices fall
Click to expand...

I very much doubt if this is true. The main cause of price increases in the past 10 years has not been a sudden surge of cash in everyone's pockets (although that has helped to an extent) but looser lending policies by banks and mortgage companies. This has been based on the banks' strong confidence in the property market. If the property market was to experience volatility or price falls, the first thing to happen would be an immediate tightening of lending policies by the banks. This would make it harder for borrowers to source mortgage finance, and harder for them to afford their chosen property. (This is why a house prices fall could conceivably degenerate into a self-sustaining downward spiral.)

Remember 10 or 15 years ago when good Irish properties were ridiculously cheap. The reason they were so was because it was almost impossible for many people to obtain mortgages - many banks would only lend to people with a long savings track records, or to people known to them via family connections etc.
 
Re: Residential Tracker

Remember 10 or 15 years ago when good Irish properties were ridiculously cheap. The reason they were so was because it was almost impossible for many people to obtain mortgages - many banks would only lend to people with a long savings track records, or to people known to them via family connections etc.
Click to expand...
Hi Tommy - While not questioning the substance of your point, I think you need to go back further than ten years to get back to the auld ways. When we got our 95% mortgage ten years ago, we had a number of competing offers from financial institutions with which we had no track record or family connections.
 
Re: Residential Tracker

Hi Rainyday

I am simply using this as an example and any doubts one may have about anecdotal evidence should not detract from my main point - that a fall in house prices may well make housing less affordable (not more affordable) to FTBs.

However, I remember friends and acquaintances (as late as 1995) saving like billyo with the likes of Irish Permanent and First National in the hopes of eventually being approved a for (modest) mortgage. Obviously, depending on income criteria etc, this would not have been necessary in all cases.
 
Re: Residential Tracker

Hi Dogbert

I am trying to design a product which allows people to get onto the housing ladder. I am not interested in designing a product for property investors who don't want the hassle of running a property.

I suppose my first step is to design a product which appeals and then see if a financial institution could do it profitably. I take your point about mismatches - that's why I pointed out the risk involved to the supplier of the product. Mismatched products only cause problems if they are a significant element of the company's business e.g. guaranteed with profits products killed off the Equitable.

If a product cannot be designed profitably, then maybe the EBS could launch a limited version of it as part of their commitment to mutuality.

Brendan
 
Re: Residential Tracker

Tommy

I do think it's in the interest of potential buyers that the product they are buying is falling in price.

Warren Buffett makes the point about cattle farmers. They want to see the price of beef rising and the consumer wants to see the price of beef falling. Investors who are buying for the long term welcome a stockmarket fall as a buying opportunity.

The optimium scenario for a first time buyer is:
Falling house prices
Low interest rates and a great supply of credit
A booming economy
A deposit which is rising in value

Unfortunately this is unlikely to happen.

It cannot be in the interests of someone who is planning to buy their first property in 2 years, to see house prices rising by 20% a year, while their deposit is rising by 2% a year.

Brendan
 
UK Residential Tracker

This is (was ?) offered by Newcastle Building Society [broken link removed].

The NBS tracker was capital guaranteed. From the tenor of the press release ("repeating it will not be easy") and the fact they're offering a mixed tracker of the FTSE and the Halifax index, they may no longer have a residential-only tracker. Also, not sure if there are others in this market. But the attached may give some pointers for Irish providers.
 
Re: UK Residential Tracker

Dogbert - that's very interesting. I will follow it up with the Newcastle to see how they did it.

Brendan
 
Re: UK Residential Tracker

Hi Brendan,

Every time livestock prices fall, farmers exit the market - in spades. Remember prices only fall when there is oversupply. We won't eat twice as much steak just because its price halves. Contrarians who invest in agricultural markets when they are cheap can do so - but only if they have their own equity as banks won't touch a falling market with a bargepole. Read up on the Irish pork market collapse of the late 90s if you doubt this.
 
Re: UK Residential Tracker

Hi Tommy

But that's my point entirely. Falling prices suit the purchaser. You don't have to increase your consumption of pork, but you will have money left over for other things.

I have run the idea by a few first time buyers and they like it. The one thing they don't want is rising prices. They would love to see a price fall. They would get more house(pork) for their money or the same house(pork) and have money left over.

Brendan
 
Re: UK Residential Tracker

Hi Brendan

Falling prices suit the purchaser, but only if they have, or can raise the equity to take advantage of the falling prices.

As a rule, banks don't like increasing their exposure in markets where prices are volatile or falling. That's why banks are not keen on financing heavily geared equity investments even though they may offer, on paper, more attractive returns than alternatives.

Of course all prospective first time buyers would love to see property market price falls. After all, everyone loves a bargain. However it is not as simple as saying that in the event of a price fall, all buyers would get more house for their money. In the vast majority of cases, they will be using the banks' money. Any tightening of banks' lending policies will reduce the availibility of credit to FTBs. Even though the price of their chosen house has fallen, the typical FTB will still struggle to afford the purchase, because their borrowing power will have decreased.
 
Residential Tracker

Would a product like this not just inflate an already overpriced residential market and add to the fortunes of existing home owners and specifically residential investors?
 
You must log in or register to reply here.
Back
Top