From Irish Times Saturday 11th August 2007
*Mr Casey said that while people who bought houses at the end of last year had seen the value of their properties fall - leaving them in negative equity if they took out a 100 per cent mortgage - houses were not “trading assets” or “short-term punts”, he said.
“People buy houses to live in, they do not buy them to sell in six months’ or nine months’ time. My view is that you are always better off repaying a mortgage than repaying dead money in rent.”*
Em sorry Mr Casey, I know you are much more experienced than me and highly paid but what sort of idiotic mantra is that to be trotting out? Your own index shows prices have fallen 8,000euro on average house in first six months of year before factoring in inflation,management fees etc. If I rented rather than bought from start of year i would be much better off now ! Tell the vast swathes of Continental Europe and the world that rent that they are fools because they are paying “dead money”.
FACT Mr Casey: in a declining market it makes perfect sense to rent rather than pay a mortgage especially when rent is much cheaper than mortgage. If this is an example of your abilities as a highly paid CEO Mr Casey then I am glad I have no holdings of your company’s shares and would be inclined to short your company from now on.
Very, very interesting! Now, I wonder what Mr Casey’s view on the thinking of a fellow institution, when it comes to the shortfall in Endowment Mortgages.
I wrote the following in another context
It appears that reputable Financial Institutions are not willing to take the blame or hit from any upheaval in the markets. I wonder why they also think that they have the Teflon effect! They expect Mortgagors to:
(1) to take the hit in a negative equity situation
(2) to take the hit on shortfalls on Endowment Mortgages.
The Financial Companies know that in (2) above, that the mortgagor will never get title to the house unless he/she pays of the shortfall. So, in a way, the mortgagor is trapped. But the mortgagor is not trapped in the first situation, it is the Mortgagee that has snared itself. So, Mr Casey should go back and straighten out his fellow financial practitioners, before trying to further hoodwink the young men and women of Ireland, whom he set out to fully exploit; and who had to pay exorbitant house prices because of all the money that he and fellow Bankers etc threw at the housing industry.
Securitisation was introduced by Bankers so that they could offload the risk from lending for house purchasers; this is the main cause of the upheaval in the markets. So Mr Casey should do a deal with the purchasers of the mortgages that he and fellow Mortgage Lenders so wantonly doled out for the past five years. House prices will fall back to 2002 prices. This whole situation is a government and financial cock up of massive proportions. It was copper fastened by international bankers with the connivance of many laws passed by Leinster House. The latter definitely were under the spell of International and Unscrupulous Bankers
This situation can be solved, but it is the instigators (International Bankers, Hedge Funds, Greedy Pension Funds etc) that should pay; and not the young people of Ireland. Basically, this is a massive international attempt at ripping off the seemingly affluent young people of Ireland that has backfired!
Question for people as intelligent as Mr Casey; spot the dead money from the scenarios below:
a) Rent for a 2 bed apartment in Dublin 4 approx -â‚¬18,000 per annum, -â‚¬18,000 end of year one
b) price of same â‚¬700,000 based on current asking prices, paying â‚¬63,000 in stamp duty, and â‚¬10,000 in other one-off costs plus 5% interest for one year of 5% being â‚¬35,000 = -â‚¬108,000 at end of year one
c) a 10% decline in the value this year = -â‚¬70,000
as ever, it is not really simple one way or the other.
One of the key issues with renting in Ireland is the framework for renting. In most of the rest of Europe (UK aside), the legal framework for renting is such that long term renting is perfectly possible, and the market is properly regulated. Some would suggest that in places like Germany it might even be over regulated. You’ll find that there isn’t the same tendency to BTL in Germany as there is in Ireland (atm).
And he is right to imply that houses shouldn’t be gambling chips either.
He’s wrong to call rent dead money however, because in the same way as interest is payment for a service you get from the bank, rent is payment for a service you receive from a landlord.
In Ireland, owning your own home is priceless because of the way the rental market works here (eg, so many landlords think that they dictate the rate which is only true when there is an excess of demand over supply and that their mortgage payments dictate the rate).
However, this should not be the sole reason for buying property, and it should not be used as some way of propping up a market in trouble. It will fall at some stage; getting more people into will only prolong and widen the pain when it corrects.
I don’t think the Irish property market will ever again reach the same levels as 2005/2006 where properties sold for x14 your salary and over 50% of a newly-formed household’s monthly outgoings were spent on servicing mortgage debt. It could be argued that this statement is a new paradigm in itself, but I proposition this argument based on: Irish demographics, low population density and the long-term Irish economic outlook.
Is that a piss take? You could fly a 747 through some of the holes in the argument for ireland and prob UK too. The banks and government will prevent a crash in the housing market? Mmm, not sure how they could do this seeing that lack of government policy and banks lending being irresponsible at best contributed significantly to the massive increases we have seen which is leading the bubble bursting in ireland right now.
The most laughable been this
“The banks have shown that any
amount of house price inflation
can be supported by simply
increasing the multiples of income allowed
There is no reason why this policy cannot
be extended indefinitely to support
further house price inflation”