Key Post What Brendan Burgess has actually said about property, prices and borrowing

[Brendan Burgess]

Many people are claiming that I am a “Vested Interest” who cheered on the property bubble. Most of the quotes are selective and out of context. They ignore the frequent comments I have made about house prices falling.

This very long thread is an effort to set the record straight.

In particular, some people have accused me of masquerading as a consumer champion for some unspecified personal motives. Here are some of the consumer issues I have been involved in over the past tweny years:

Brendan Burgess - record of consumer activism
Active member of FISC the precursor of MABS which provided free financial advice to those who could not afford the services of a chartered accountant.
Participated in a very successful campaign against endowment mortgages.
Campaigned against demutualisaton of Irish Permanent as it was not in the interests of mortgage holders.( A lone voice by the way)
I have contributed frequently to radio, television and the newspapers on consumer topics.
I have made formal submissions on important consumer topics, for example
- The legislation on IFSRA and the Ombudsman
- The Law Reform Commission on personal debt
- The Minister for Enterprise(?) against banning credit card surcharge payments
I have presented the consumer view to industry conferences e.g. The Irish Banking Federation and The Society of Actuaries
I have campaigned over many years to improve the lot of the Irish Nationwide borrowers.
I put down a motion of no confidence in Michael Fingleton back in 2003.
I have chaired the Consumer Panel of the Financial Regulator.
I have warned people about the dangers of investing in overseas properties.
I have warned people of the risks involved in investing in Irish residential property.
I have contributed frequently to many, many threads on askaboutmoney on issues such as "Money Makeover" etc.

And of course, I have hosted a website on consumer topics for over ten years.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

13 June 2002 Brendan Burgess on: How Risky is Property Investment?

Many people who borrow to invest in property underestimate the risk involved.
How will I be fixed if property prices fall in the short or medium term?

You should only borrow to invest in property if your other income is fairly secure i.e. you are not in any real danger of losing your job.

If you already have a big mortgage on your home, you would be foolish to borrow 100% of the price of an investment property. If interest rates rise, you will have great difficulty in meeting your repayments. The potential return is just not worth the risk involved.

If you already have a home, you have a significant exposure to the property market. Buying another property increases this exposure. Investing in shares diversifies your investments.

If you are not borrowing to invest, you are better off investing in shares than property.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

30 May 2004 There is a significant risk that house prices will fall from their present levels when interest rates eventually rise.

In response to the question – I have bought a new house. Should I keep my old house as an investment?

No one knows whether house prices will rise or fall in the long term. There is a significant risk that house prices will fall from their present levels when interest rates eventually rise.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

9 November 2006 Why speculation about house prices is banned on Askaboutmoney

There were over 8,000 posts on the topic in this thread. Anything which can be said on the subject has been said already. No new useful information was emerging.

This thread summarises the arguments relating to the future direction of Irish house prices. If anyone wants to update this summary in a balanced way, please email it to me at burgess7@eircom.net and the mods will review it.

For those who want to continue the discussion, there are loads of other sites including:

thepropertypin

[broken link removed]

As far as I can see I made no contribution to this thread of 8,000 posts on house prices. Why would I? I have always been very clear that I have no special powers to predict house prices. Just as I have no power to predict share price movements over the short term.

It is widely claimed that banning the discussion of house prices on Askaboutmoney contributed to the boom in property prices. It is further claimed, that I, as a Vested Interest, banned discussion of property prices to cheer on the boom.

In reality, there was never any discussion of house prices. A thread with 8,000 posts is a shouting match, not a discussion. I would have loved a reasoned discussion but open discussion forums don’t really lend themselves to it. However, we provided links to The Property Pin and politics.ie for anyone who wanted to continue the shouting match.

Bizarrely, it is claimed that we allowed people to express the opinion that house prices were rising. No llinks to any thread - just claims that we permitted speculation about prices rising.

I have always expressed the opinion that foreign property was not an “investment”. But we did not ban people who decided to invest in foreign property from discussing it on Askaboutmoney. Perhaps I should be accused of cheering on the overseas property market?

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

12 March 2007 Brendan Burgess Will house prices rise or fall?

No one responded to the invitation to write a balanced summary, so I wrote this summary and reopened the discussion of house prices. After a brief period of useful discussion, it deteriorated into a shouting match again and the thread was closed.

No one knows the answer to this question. One expert will argue confidently that Irish house prices must crash, while another will argue confidently that they must continue to rise. This post aims to summarise the arguments on both sides.

No matter what level house prices are at, some experts will argue that they are overpriced. Some people have long argued that prices are excessive, but prices have doubled since they began their forecasts of doom. See the links at the end of this post.

However, no matter how optimistic you are about property, most would agree that the risk of a serious fall in property prices has risen recently. This is not a prediction that house prices will fall. It is just a recognition that the level of risk has increased.

I have been criticized for not listening to the warnings of David McWilliams and Morgan Kelly. At least I reproduced their articles on Askaboutmoney even if I found their style of argument very difficult to read.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

17 July 2001 – BUYING A HOME IS YOUR NEXT PRIORITY
(after paying off debt)

(From the Askaboutmoney Guide to Savings and Investments by Brendan Burgess)

If you do not own your own home, you should gear your savings and investment strategy to make it possible for you to buy a home as soon as possible. Owning your own home has many financial and non-financial benefits: The main benefits is that you can make the place your own and do what you want. Once you have the mortgage under control, you will never again have to worry about having a place to live, no matter what happens to you financially. If you don't own your own home, rents can rise and rental property can become scarce. Also you will have no security. So, accumulating the deposit to buy a house takes priority over everything else.

Young people who don't have a home often commit themselves to totally unsuitable savings schemes. For example, they sign up for long term savings schemes which have high initial costs or which have terminal bonuses. They find themselves in a situation 5 years later when they want to buy a house. They go to the life insurance company to find that the £6,000 they have contributed over the last 5 years is now worth only £5,000. They have to cash it anyway because they need the money for a deposit.

Likewise you should not start a pension until you have bought a house. The whole industry, the entire media and your father will tell you that you cannot start a pension too early. This is nonsense and should be rephrased "you cannot start saving too early". A fat pension is no good to you if you want to buy a house. You cannot get your hands on the pension fund. Save outside a pension fund until you own your own home and then worry about a pension. ( The only exception to this is where your employer will contribute more to your pension, the more you contribute. Microsoft Ireland is an example of this. In this situation, you should contribute as much as possible to your scheme).

If you are not going to be able to afford to buy a house for the next few years, then you should consider putting your savings into a stockmarket based unit linked fund with no initial charges.

But are house prices not heading for a crash ?
No one knows if house prices will go up or down in the short term. But it is very likely that they will rise over the medium to long term.
If you buy now and house prices do go down, it's a pity but hardly a calamity. OK, if you had waited you might have been able to get a bigger and better house. You will be in much more trouble if you don't buy now and house prices continue to rise. It's quite possible that you will never be able to afford a house.

Even in July 2001 I raise the prospect of house prices crashing! Although I concluded that they would rise over the medium to long term.

Almost 9 years later? I am still a big believer in owning your own home for financial and non-financial reasons as outlined above. This does not mean that one should rush out and buy a house tomorrow. But it does mean that one should plan to buy a house and gear one's savings and investment strategy towards that. So don't start a pension. Don't tie up your money in an inaccessible savings product.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

17 July 2001 IF YOU OWN A HOUSE, GET YOUR MORTGAGE DOWN TO A COMFORTABLE LEVEL
(From the Askaboutmoney Guide to Savings and Investments –by Brendan Burgess)

Most people have to take a huge risk in buying their first home. They borrow the maximum amount often lying to the lender to boost their earnings. In most cases, things work out fine as their salaries increase and house prices increase and the early indigestion of the heavy borrowings eases after a few years. But if the economic environment changes, heavily borrowed people will be in trouble. There are two big risks - a recession affecting their earnings and a rise in interest rates. A fall in house prices is not in itself a problem unless you have to relocate.

So it's very important to concentrate on getting your mortgage down to a comfortable level. What a comfortable level is depends to a great extent on a variety of circumstances e.g. how safe your job is and how the economy is faring. As a rough rule of thumb, try to get your mortgage down to about twice your annual salary or 50% of the value of your house.

I was savaged at the time by many posters on Askaboutmoney for this very conservative approach. Imagine - try to get your mortgage down to twice your annual salary!

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

31 July 2005 How Scary is a 100% mortgage?
Sunday Times article by Kathy Foley


The bit in “Quotes from the Bubble” attributed to Brendan Burgess

"The lenders who have come up with the 100% [mortgage] have balanced the risk. Of 100 people that take out these mortgages, maybe 95 will be okay and five will get in serious trouble and the banks can take care of that trouble."

As of February 2010 – around 3% of all mortgage holders are in serious arrears. So this comment is about right so far. The banks are not yet suffering seriously from having issued 100% mortgages.

The bit they left out:

Although talk of economic hardship might seem like doom-mongering to children of the boom, Brendan Burgess insists it is not an altogether unlikely scenario. “At the moment, we are in a Goldilocks economy where everything is going right. Back in the 1980s, we never thought it could go this right and now it is this right, we think it can’t possibly go wrong,” he said.

“If someone borrows €400,000 on a property and they are forced to sell it for €320,000, they still owe €80,000 to the bank,” said Brendan Burgess. “A lot of people don’t know that. That is of no concern to the guy sitting in a flat paying €1,500 a month to a landlord but if you are living at home with your mum and dad in a nice comfy house, you don’t need to rush out and buy now.



“Property prices are just as likely to go up as they are to go down over the course of a year.”

I suspect that this was a slight misquote because it doesn’t make sense as it's written. It is much more likely that I said “Property Prices are as likely to go down as they are to go up…so you don’t need to rush out and buy now”


From recollection, I supplied this quote although it’s attributed to someone else

One Irish man who lived in the UK in the late 1980s and early 1990s urges some caution on the part of young people considering taking out 100% mortgages. “People think, ‘This time it’s different’, but it’s not.



“There are cycles in the economy and bad times come around at some point. When it happens, people with 100% mortgages will be the first to be squeezed,” he said.
The man, who asked not to be named, speaks from experience having taken out a 100% mortgage in London in 1988, right at the height of a property boom.



“Within 18 months, the fizz had gone out of the market. We wanted to sell and come back to Ireland but we couldn’t get a buyer. We ended up stuck in the UK for another eight years. The market fell by 25% and we had significant negative equity,” he said.

As a recruitment consultant I placed this guy in a job around 1990. But a few days before he was due to start, he pulled out because he could not sell his home. I lost my big fee due to his negative equity! But when he did eventually come back to Ireland some years later, one of my colleagues placed him.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

The Matt Cooper Show Today FM around the time of the launch of 100% mortgages for home owners Brendan Burgess and Denis Casey MD of Permanent tsb
Denis Casey was then the Managing Director of permanent tsb and he defended 100% home loans. I questioned the wisdom of them for the banks but I expressed my point very badly. I compared the situation to the crisis in the 1980s when the international banks all lent money to Latin American governments and had to write it all off. My point was that once one bank starts lending, they all have to. But Denis Casey got very annoyed and said “What on earth has South America in the 1980s got to do with lending to homeowners in Ireland 2005?”

Although I was initially opposed to 100% mortgages, in reality people apparently were borrowing the deposit from the Credit Union, so they had 100% mortgages anyway. If people were going to borrow 100% of the purchase price, it made sense to borrow it from the cheapest source.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

Sunday Times Money, 8 March 2009
The bit in “Quotes from the Bubble” Brendan Burgess

If you’ve a real need to buy now – for example, if you are starting a family – don’t allow the fact that your job is a bit uncertain to put you off. If the worst happens, the government has ordered AIB and Bank of Ireland to lay off homeowners in arrears for at least a year, while other lenders must give them a six-month breather.

Read the full article [broken link removed]
[broken link removed]

Many people have postponed buying because they fear for their jobs. This is wise, but it could backfire for those who urgently need a place.

Brendan Burgess, said: “It’s easier to get mortgage approval when you’ve had a job for at least two years. Even if your current employment is uncertain, it could make sense to borrow now, provided you expect to find another job soon. If you’ve a real need to buy now — for example, if you are starting a family — don’t allow the fact that your job is a bit uncertain to put you off. If the worst happens, the government has ordered AIB and Bank of Ireland to lay off homeowners in arrears for at least a year, while other lenders must give them a six-month breather.”

It could make sense ...provided you expect to find another job. If you have a real need to buy now...

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

If you are buying an investment property you should borrow 100% and get an interest only loan. Brendan Burgess Irish Independent 7 October 2004

IF YOU are investing in property, you should take out an interest-only mortgage, unless you are not on the top tax rate. In particular, you should always pay off your home mortgage before making any capital repayments against your investment property.

You should borrow the maximum amount possible, bearing in mind the usual warnings about borrowing to invest.

This article was widely interpreted by people to mean that I was recommending property investment. This was an article on the tax aspects of property investing. Look at the first words “if you are investing in property…” Time and time again on Askaboutmoney and elsewhere, I have said that people are always better investing in shares, especially if they already own their own home. But many people had already decided to invest in property and they were stupidly paying off their investment property loan when they should have been paying off their home loan.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

Brendan Burgess on Interest only for home mortgages

People buying their first home have very big expenses in the first few years. I recommend that they start with an interest-only mortgage.



Paying interest only, means that you have more money with which to adjust to the life of home ownership. If you are in the housing market for the long term, which most people are, then what happens in the short-term to prices is not very relevant.


For those, interest-only in the first few years of their mortgage makes sense. They don’t have to blow the repayments saved on new cars and drink. They can use it to improve their home. They can even save it elsewhere to rebuild a savings fund.


There is an old-fashioned idea that mortgages should be paid over 20 years and people should start contributing to a pension at age 21. These ideas need to be challenged and reviewed from time to time.

I still stand over this. Repaying capital is simply a form of saving. By saving in a deposit account instead of paying off your mortgage, you are maintaining flexibility.

One criticism of this is that it is ok for financially astute people but not for the masses. Given that criticism, when I next make these points, I will stress again that overborrowing is dangerous and people should aim to get their mortgage down to a comfortable level as quickly as possible.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

This is the 1 minute and 8 seconds carefully selected excerpt from a 4 minute interview shown on YouTube.

Brendan Burgess on the RTE 9 o’clock news 16 September 2008

Irish Banks are very well regulated.
Irish banks are very sound
They don’t have direct exposure to the sub-prime borrowers in the US
which is what the big worry is.

The risk to an Irish bank is panic . If everbody felt that a particular bank was going to go and they all rushed down to take their money out. . That would create a liquidity problem.
And you could have a very fine solid bank getting into difficulty. Jus like

Northern Rock – it was a solvent bank with a liquidity problem.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

Brendan Burgess says Fill your boots with shares

From the same clip above

Bryan Dobson: “Just finally …Irish bank shares are down at where they were in the mid 80s. Is that a buying opportunity?”

Brendan Burgess: I think we are going to look back in a few years time at the state of the Irish banks and the Irish stockmarket generally and say how did we not fill our boots with those shares.

I might regret saying that later

Dobson: Brendan Burgess on your head be it.

Here are the ISEQ total return indexes which include reinvested dividends.

.	ISEQ overall	ISEQ General
16-Sep-08	7,136	5,419
16-Sep-09	6,078	5,715
16-Sep-10	5,114	5,414
16-Sep-11	4,745	5,481
14-Sep-12	6,398	7,394
16-Sep-13	8,506	9,620
16-Sep-14	9,737	10,791
22-Mar-15	12,654	14,275
06-02-2017	13,724	16,341
09-04-2018	14,272	17,117
02/03/2020	14,082
Change	97%	216%

http://www.ise.ie/Market-Data-Announcements/Indices/ISEQ-Benchmark-Indices/

https://live.euronext.com/markets/dublin/indices/list - Doesn't seem to quote an ISEQ General any more?

- I did say "in a few years' time"

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

Just to fill in the background. Lehman Brothers had been allowed to collapse. The money markets had frozen. Irish people were very worried about the safety of Irish banks. The Labour Party and others were calling for the €20k deposit guarantee to be increased.

Excerpts from the previous clip. It's worth looking at the full clip to get the sense of panic.

Dobson: The crisis in international financial markets deepens this evening. The collapse of Lehmans and ongoing uncertainty about insurance giant AIG has prompted a massive sell-off of financial shares .

Irish shares took a hammering with AIB and Anglo taking the biggest losses.

Lee: The shock waves following the collapse of Lehman Brothers have rolled on. The money markets have frozen. Banks have stopped lending to each other.

Share prices have nose dived with the ISEQ down by 4% and banks particularly badly hit. But Irish Life and Permanent and Anglo were down by twice that amount.

Dobson to Lee: How much of this is due to collapse in confidence and how much is due to the way markets operate?

Lee: The money markets have stopped operating.

When you see Lehman Brothers going, no one is going to be able to save everybody, …they are all beginning to panic

Dobson: What about the impact of this on the real economy:
Lee: It’s mixed in one sense . All you can say is that this doesn’t help . and it impacts on confidence. I’t s not good at all.

And ...

Among the growing economic crisis, here there have been calls from the opposition for greater protection for Irish bank customers.

Brian Lucey: Nobody quite knows unfortunately what the value is of the assets that the banks hold. There is a lot of noise in that system. Until we get clarity on that , the reality is that the volatility will continue.

The Labour Party is calling for the greater protection of customers of Irish Banks.

The Departmen of Finance said that the current protection rates are being reviewed at an EU level

And you can read my full interview in that context:

Bryan Dobson: These are obviously very uncertain and difficult times. First of all there is the question of the guarantee for depositors in Irish banks. That is 20k. So some of your money is guaranteed by the banks themselves?

Brendan Burgess: Yes. 90% of your money in an Irish bank is guaranteed up to a maximum of €20k. So if you have €20k in an Irish bank and something happens you will get back €18k.

If you have 100k in an Irish bank, the guarantee is limited to 20k, so you well get back only €20k. You will lose €80k.

Dobson: As Joan Burton was saying there, there are different thresholds depending on whether it is a foreign bank or an Irish subsidiary of a foreign bank (Note: Joan Burton and many others were calling for increased guarantees)

The Irish banking system adheres to the European minimum. And my own view, my personal view on it would be that this is the appropriate amount.

There is no such thing as a free guarantee. If you raise the guarantee to 50k which the Danes provide, in the end consumers are going to pay for that. So all of the banks contribute to that fund.

If an Irish bank goes to the wall , which is very unlikely, the rest of the Irish banks will bail them out and personally , I would be more concerned about someone with €10k on deposit than someone rich enough to have €100k on deposit.

Bryan Dobson: If you have €100k and you want a absolute guarantee you can go to the Post office which is state guaranteed or Northern rock?

Brendan Burgess: Northern Rock is guaranteed by the British government and Post office savings Certs are guaranteed by the Irish government and that is still a valuable guarantee.

Bryan Dobson: Is it not unthinkable that an Irish government or any government would allow a retail bank, a major retail bank with all these branches and with all these customers to go under?

Brendan Burgess: I don’t think it’s inconceivable at all. The Government regulates Irish banks but the government does not and should not guarantee Irish banks and that is a very , very important distinction.

If banks behave badly in their lending or if they are reckless in their management or whatever, they should be allowed to go to the wall and that is a fact of economic life.

It would have an effect on the economy but giving some sort of soft guarantee to a badly managed banks would be irresponsible and very bad news for the long term

Bryan Dobson: What they are all saying from the Central Bank down , even the international rating agencies are saying that there isn’t a reason to worry about Irish banks. They are very sound.

You can also see what people were saying on Askaboutmoney at the time:

Have a look at this thread on Askaboutmoney from the time to see what the issues were. Anglo Irish Bank was actually talking about rescuing the Irish Nationwide.

Here are more of my thougths at the time


Is the increased guarantee to 100k a good idea?

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing

Brendan Burgess in Irish Independent, 18 August 2007:

“”I would invest in AIB or Bank of Ireland rather than putting money on deposit with them.”

Here is the article "Investors are told to hold their nereve and ignore the turmoil"

But yesterday personal finance experts said share prices would rise again, and people should not sell out of equities now.

Accountant and founder of www.askaboutmoney.com Brendan Burgess said that people should keep faith with the stock markets.

"If you take money out of the stock markets to put it on deposit, you are sure to lose money because of inflation which is running at 5pc at the moment," he said.
People should be aware that it was impossible to eliminate risk, but with shares people were more likely to make gains.



"I would invest in AIB or [broken link removed] rather than putting money on deposit with them. These banks have no direct exposure to the US sub-prime market, as far as we know."



He said that markets tend to overdo the falls, and rise too strongly during the peaks.



Mr Burgess said that in the case of both investments and pensions it was wise to just check them once a year.

I was in good company

Chairman of the [broken link removed] Liam FitzPatrick
Rachel O'Sullivan of Deloitte
Financial adviser Liam Ferguson said that people who invest in stock markets should be aware that there will be peaks and troughs.
"The last thing you should do when a correction comes along is sell out.

"I would invest in AIB or Bank of Ireland rather than putting money on deposit with them"

This is a very untypical comment for me to make. Since the inception of Askaboutmoney back in 1999, I have refused to comment on specific shares. Askaboutmoney has never allowed discussion of individual shares. I have always recommended a balanced portfolio of shares. As I pointed out

"People should be aware that it was impossible to eliminate risk, but with shares people were more likely to make gains. "

However, it was not an unreasonable thing to say in August 2007 where the yields on banking shares were higher than the deposit rates. As someone else pointed out, even Warren Buffet bought into AIB at around this time.

I have learnt from this and from the 6-1 News interview, that I should not comment on individual shares.

 

[Brendan Burgess]

Re: What I have actually said about property, prices and borrowing



Contributing to a pension is better than squandering your money - but, contrary to most of the official advice, getting on the housing ladder is more important, writes Brendan Burgess


The consensus of opinion seems to be that you can't be too young to start a pension. It is argued that you should start contributing to a pension as soon as you get your first job. If you do, the magic of compound interest will make you rich when you retire.


This is the advice of most financial advisors. This is the advice of the Pensions Board. This is the advice of the Government.



But this advice is wrong.



Contributing to a pension is better than squandering your money on a brand new car every two years or on a third holiday. But getting on the housing ladder is more important than starting a pension.



As with any financial decision, it is absolutely critical to look at the financial objectives of the person and take all factors into account. When Johnny starts his first job at 23, his main financial objective is to buy a house and then to get his mortgage under control. It is better to have accessible savings to help you buy a house than to have your savings tied up in a pension scheme which you can't access until you retire.



Apart from the security and psychological advantages of owning your own home, there are huge financial benefits also.



It's more tax efficient than renting and you won't be subject to the vagaries of the rental market. The gain in value of the house will be exempt from Capital Gains Tax.
You will get income tax relief on the interest you pay on your mortgage. Mortgages are the cheapest form of finance.



If, at some later stage, you need money to start a business, for example, you can borrow cheaply using the security of your home. When you do retire, if you run out of cash, there are many options available to you to use the value of your property to fund your retirement.



So don't think about contributing to a pension until you are on the housing ladder. And when you do get on the housing ladder, your next priority is to get your mortgage to a comfortable level. Only you can decide what level of mortgage is comfortable for.



Some people seem to be comfortable with a 100pc mortgage which is six times their salary. If you are at the early stages of your career and you expect your salary to rise dramatically, then this might be comfortable.



But if you are employed in a volatile industry such as the construction industry, then you should be aiming for a much lower mortgage to salary ratio.



An uncomfortably high mortgage leaves you no room for manoeuvre.



If you get bored in your job and want a change, you won't be able to take a lower paying but more interesting job.



If, someday, you get a great business idea, you would not be able to take the risk of quitting your job, because the mortgage payments would be too high. You would not be able to afford to quit work or move to a part-time job to take care of the child.



If you want to take a year off to travel, you won't be able to because of the mortgage around your neck. And worst of all, if you lose your job or get sick, you won't be able to meet mortgage repayments. And an inaccessible pension fund will be of little value to you then.



As a rough rule of thumb, I would say that a comfortable mortgage is around twice your annual salary and around half the value of your home. If some crisis happens and you can't afford the repayments, your lender will be very flexible in rescheduling such a loan.



Don't forget that mortgages with low loan value are a lot cheaper. NIB, for example, charges just 4.5pc on loans of less than 50pc of the value of your home.
Typically, the interest rate on a 100pc mortgage would be at least 5pc.
So get your mortgage down to a comfortable level and then you can start your pension. In fact, if your mortgage is comfortable, you can go in the opposite direction and switch to an interest-only mortgage.



You should now be making the maximum possible contributions allowed to your pension scheme, as it is simply the best way to save for the long term.
You get tax relief on the contributions as they go in. There is no tax paid on the income within the fund. Any increase in value of the fund is not subject to Capital Gains Tax. When you retire, you will be able to take around 25pc of the fund tax free.



Some will argue that now is not a good time to buy a home as prices will fall and therefore it's better to put your money in a pension.



But this argument is not valid. If you believe that house prices will fall, by all means defer the decision to buy a house.



But save your money outside a pension scheme so that you will be ready to buy a house when you think that prices are more reasonable.
[broken link removed] is the founder of consumer finance website [broken link removed] where you can discuss the issues raised in this article.
Investing your money in bricks and mortar

Some people don't bother with pensions, preferring to invest in bricks and mortar. This works if you borrow to invest and the underlying property itself turns out to be a good investment.



Paying over the odds for a one bedroom apartment in some remote part of the world is no substitute for a pension.



If you borrow to invest in Irish property at current price levels, you might do very well, but you might also be wiped out. Do you want to plan your retirement on such risks? Borrowing has a dramatic impact on the risks and returns of investing.
But don't forget you can borrow to invest in your pension fund and in some circumstances you can borrow within the pension fund.



If you are thinking about investing in property instead of a pension, you should first investigate if it's possible to invest in the property through a pension fund and so get the best of both worlds.



While property has served people very well over the years, it is a mistake to have all your money invested only in property.



You should have some of your money invested in the stock market and a tax efficient pension fund is the best way to achieve this diversification.

 

[UFC]

Re: What I have actually said about property, prices and borrowing

I don't think you're being completely honest Brendan.

I have been browsing this forum for many years and it was quite obvious people were allowed talk about the price of houses going up; it was only the talk of prices going down that was banned.

You are constantly suggesting people invest in property and bank shares (including advice that people should ignore their pension and instead buy property, and that interest only mortgages are a good idea for non-investors). All of this advice was given after the bubble had burst.

I want to believe this is simply a lack of financial knowledge, but as this is Ireland I can't help but believe dishonesty and being a "vested interest" are the explanations.

It wouldn't be so bad if you were an ordinary Joe (I don't have an issue with anyone trying to make money or protect their position), but you hide behind the credibile disguise of being a consumer advocate.

Perhaps you meant differently, but we can only react to the things you have said and done.

 

[UFC]

Re: What I have actually said about property, prices and borrowing

Also, I think a lot of the reason why people are quick to point the finger at you is because you refused to use your position of power to warn people about the _obvious_ property bubble in Ireland. That reeks of vested interest.

 

[tyoung]

Re: What I have actually said about property, prices and borrowing

Here's a thread from Aug 2007. The poster wants advice. His wife has stopped working temporarily(two young children) and they are running a 1500 deficit. They have 10K in savings but it won't be enough to last until she returns to work. They have an investment property with some equity. The banks have refused to alter the terms of their mortgage (No top ups, No interest only period). Should they sell their investment property?

Brendan's advice.
"Property is a long term investment and temporary cash-flow difficulties should not be given excessive weight."
"Run down the €10k savings over the next 6 months and then decide how you feel about it. As you will be approaching the end of the fix period, you will be free to move to another lender and so the banks will have to treat you better. "
"It surprises me that you were refused a remortgage. Go back to the bank a few months ahead of when your fixed rate period ends. If they don't give you a remortgage, go to a mortgage broker. "

So as late as August 2007 Brendan didn't see any problem with running an income deficit in order to hold on to an investment property.
IMO this is appalling advice. An individual or a household cannot be run like a business. They must be much more conservative in terms of borrowing etc.
Monthly expenses too much - should I sell my rental property