What happens if my loan is sold?

If your loan is sold to a vulture fund or another bank all of the original contracts remain the same – though that includes the obligation to make repayments.

AIB isn’t selling residential home loans, which carry special protections.

While the legal situation doesn’t change, the lender’s approach can. In some cases vulture funds are more open to writing off debt, if they can get cash upfront from the debtor. But, they are also far less embarrassed than local banks about taking hard legal action against defaulters.

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What happens if newly-built houses cannot find buyers?

If only there was a simple formula for predicting market crashes, we’d all get rich. (Well, those who knew it would). But there isn’t. Except that, just maybe, there might be when it comes to housing.

A tall claim – and one I don’t intend betting money on. Even if I were legally entitled to give financial advice on the matter, I wouldn’t. Still, it’s an odd little piece of data and one which policymakers perhaps ought to keep in the back of their minds.
It shows a fairly consistent historical pattern that when the cost of mortgage repayment exceeds a third of average disposable income, house prices correct. That is to say, they fall.

As we know, they don’t tend to fall softly. Another piece of data, from the OECD during the bubble, found that if house prices have risen more than 50pc during an upswing, they fall more than 30pc in the downturn.
Don’t say nobody told you.

There is the rub. The future always looks obvious, looking back. But as the regulatory warnings say, the past is no guide to the future and, looking ahead, things are not at all obvious.
It is particularly hazy now because everything has changed so much since 2007. Even the recent past is another country, where they did things differently. Models based on what happened then, never mind economic policies, are likely to prove mistaken.

So one should not rely too much on the finding in the Budget report by consultants Indecon that a couple earning €84,000, living in the average Dublin house, would pay 30pc of their income on the mortgage – close to past danger levels. But nor should one ignore it completely.
Especially not the bit which says the figure would have been 17pc had they bought in 2012. On this measure, houses were cheap then, just as they were in 1997. Of course, being average, our couple could not have got a mortgage in 2012. Analysing the data is not much use if you don’t have the dosh. It is, however, of some help in analysing the present.

The present is very peculiar, with no housing market worth the name. There are so few transactions, and credit is so constrained, that prices are not a convincing guide to conditions.

Sales are beginning to increase, but mainly in new houses. Purchases of those grew by 44pc from the same period of 2016 but from a low base and with two-thirds of the deals in the Dublin area.

Sales of existing homes were up a paltry 6pc, which means things were pretty much stalled outside greater Dublin. Among the many strange things about the times we live in is that, although there is this huge difference in the state of the market regionally, the spread in prices has never been narrower. That’s probably down to lack of activity and affordability too.
It is difficult for people to reconcile all this with the other figure that, compared with 2007, Dublin prices are still 26pc lower and 30pc down elsewhere. In such dysfunctional conditions, where supply is nowhere near equilibrium with demand, it is tempting to avoid drawing any conclusions from the figures.

Yet we cannot just dismiss the dire possibility that only those households with earnings of more than €80,000 a year are in safe financial territory buying the average-priced Dublin home.
It has been argued that this may not be as dire as it might look, precisely because relatively few properties are involved. That may be the case where the health of the banks, or the wealth of most households, is concerned, but it is not the case with the current problem of insufficient construction.

The Indecon report, which was analysing the effects of the Help To Buy scheme (HTB), came to the conclusion that construction costs are the single biggest driver of rising prices. This was based on as extensive a survey of house builders as possible. More than half described “changes in cost of construction” as a significant, or very significant, factor behind price increases.
That was only one of a wide collection of causes cited by builders. The HTB scheme itself was described as significant or very significant by 45pc. Only 10pc thought it did not make some difference. The impact of revised loan-to-value mortgage rules and increased demand by first time buyers also figured prominently.

Indecon concludes that housing supply will be largely determined by the cost of construction compared to prevailing market prices. Other factors will be the availability of credit for contractors and builders’ assessment of the sustainable level of effective demand.

The report does not go so far as to conclude that high-profile measures, such as the HTB and easier deposit rules, are pointless at best and harmful at worst – but there is good reason to think so.
The question left hanging in the air is what happens if present market prices do not prevail?

There are caveats around all these conclusions. The recovery is too recent to give reliable trends – including my own favourite repayment-to-income ratio – and survey responses must always be treated with caution. But we are left with the worrying thought that the cost of building an average dwelling is more than the average buyer can safely afford.

If so, any large increase in supply may not be met by customers who can afford it. Alternatively, prices may peak and fall in the next few years. Either way, the recovery in construction would stall.
The consequences of the housing shortage in an economy growing at 5pc, with the potential to perhaps continue growing at 3pc a year are beginning to be recognised, although they should have been recognised and prompted emergency responses long before this.

The economy’s prospects have already been damaged but that will be only the start if the little progress which has been made in housing comes to an end.

Consultants should be called upon again, to find out if construction costs are really so out of line and if so, why?
The threat to prices comes from a possible rise in interest rates, amid growing alarm among central banks that their policies have not produced what they hoped – more spending and inflation – but rather the one thing they did not want, more debt and rising asset prices.

Led by the Federal Reserve, they are starting to move, but with all the nervousness of skaters venturing onto thin ice. Too big an increase too quickly and the global economy may crack in another crash. Take too long about it and the ice will just get thinner.

Their problem, and ours, is that it is already hard to see how a fall in asset prices can be avoided. Those prices are based on investors being happy with rental yields in low single figures, given that there is none at all on safe government bonds.
The best hope is that improving conditions in the global economy may prevent a fall turning into a crash. Ireland is vulnerable either way and time may well be running out.

The promised land of 2021 is just too far away. A lot needs to be done and it had better be done quickly.

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Ireland is a high cost location for small firms – SFA

Ireland is a high cost location for small firms, according to Linda Barry, assistant director at the Small Firms Association (SFA).

Addressing the Joint Oireachtas Committee on Business, Enterprise and Innovation yesterday, Ms Barry said that many SFA members were operating in low margin environments, making it difficult for them to absorb cost increases.
In addition, low inflation, alongside customers’ demand for value was making it impossible for many businesses to pass cost increases on to consumers, Ms Barry said.

Labour costs have been identified as the number one risk to small businesses over the coming year, with insurance costs and Local Authority rates also cited as causing great concern for small businesses.
“The Government has access to detailed data and expert analysis on all of these costs, in particular from the National Competitive Council,” Ms Barry told the committee.

The SFA, which has over 8,000 member companies, is calling on Government to create a stronger link between this information and policy decisions, to ensure that Government is not adding to cost pressures on small businesses.

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Fresh hope for families in tracker loans nightmare

Families have been given fresh hope that their tracker nightmare will end this year, after the Government threatened to hit banks with massive tax bills if they do not rectify the mess.

Taoiseach Leo Varadkar said the behaviour of the banks was “scandalous” after it emerged that lenders are actively frustrating the efforts of regulators.

The Government is devising a plan to hit banks with steep tax increases, after the Central Bank watchdog was accused of failing to use all its powers to resolve the trackers scandal.

Mr Varadkar warned that the Government is losing patience with the banks, who must restore the low-cost mortgages to those who should never have been deprived of them.

If the Government does not see results before the year ends, it will provide the Central Bank with enhanced powers or will increase taxes on the banks.

At least 13,000 borrowers were forced on to higher interest rates after their banks refused them their right to a low-cost tracker.
But at the moment, banks like AIB, Bank of Ireland and Permanent TSB will not have to pay any tax on profits for decades to come because they are sitting on multi-billion euro “tax losses”.

There was previously a cap that restricted their use of “deferred tax assets” to just 50pc of their corporation tax bill, meaning the other 50pc would still have to be paid every year.
Read More: How to tell if you are affected

The policy was changed in 2013 when the cap was scrapped in its entirety. In one stroke then-finance minister Michael Noonan gave banks the ability to completely offset all corporation taxes.

Reversing this move is within the Government’s power and would prove hugely costly as three banks have a combined €4.45bn in deferred tax losses. Some €2.2bn of this could no longer be used to offset against their tax bills if there is a return to the system in place before 2013.

Mr Varadkar said: “It’s very much in the interest of the banks, their shareholders and staff to fix this problem, and fix it quickly.”
Finance Minister Paschal Donohoe will call in the heads of the main banks on the trackers issue next week.

The minister is also meeting with the Central Bank to see if it has all the powers it needs to deal with the scandal.
Governor of the Central Bank Philip Lane is due before the Oireachtas committee on the matter today.

Mr Varadkar was responding to a new progress report from the Central Bank, as part of its efforts to get 15 lenders to review their mortgage books.

The report found lenders are refusing to acknowledge large numbers of people that regulators reckon should never have lost a tracker.

Banks are also making “unacceptably low” offers of compensation in cases where they do agree a tracker should be returned.
They are putting some customers back on trackers, but on margins so high they might as well be on a high-cost variable rate.

It has also been revealed that up to 100 families lost homes because of banks’ failures.

Labour leader Brendan Howlin said the Central Bank had been investigating this issue for two years, but the delays were unacceptable.
He said people had suffered financial loss and great human suffering, and called on the Central Bank to name the two banks that had behaved especially badly.

Chairman of the Oireachtas Finance Committee John McGuinness said politicians were open to strengthening the regulators’ powers, but it was not using all of the sanctions at its disposal at the moment.

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EU-US data transfer pact passes first annual review

A year-old pact underpinning billions of dollars of transatlantic data transfers won a green light from the European Union yesterday after a first review to ensure the US protects Europeans’ data stored on American servers.

The EU-US Privacy Shield was agreed last year after everyday cross-border data transfers were plunged into limbo when the EU’s top court struck down a previous data-transfer pact in 2015 because it allowed US spies excessive access to people’s data.

That came after Austrian student Max Schrems filed a complaint in Ireland in 2013 over data transfers by Facebook Ireland to the US under the old so-called Safe Harbour data protocols.

The European Commission last month conducted its first annual review of the new framework as it seeks to ensure the US lives up to its promises to better protect Europeans’ data when they are transferred across the Atlantic – failing which it could suspend the Privacy Shield.
The Commission said it was satisfied that the framework continues to ensure adequate protection for Europeans’ personal data although it asked Washington to improve the way it works, including strengthening privacy protections contained in the US Foreign Intelligence Surveillance Act.

The conclusion will come as a relief to the more than 2,400 companies that use the scheme, including major Irish employers such as Google, Facebook and Microsoft.

The EU Commission said the US Department of Commerce should be more proactive in monitoring companies’ compliance.

“Transatlantic data transfers are essential for our economy, but the fundamental right to data protection must be ensured also when personal data leaves the European Union,” EU Justice Commissioner Vera Jourova said.
“Our first review shows that the Privacy Shield works well, but there is some room for improving its implementation,”

Companies that transfer Europeans’ personal data outside the bloc are forbidden from moving data to countries deemed to have inadequate privacy protections, unless they have special legal contracts in place.

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AIB gears up to launch $2bn Project Redwood loan sale

AIB is preparing to launch the largest non-performing loan sale in its history next month as it embarks on the final phase of its post-crisis balance sheet purge amid a fresh crackdown on the sector from the European Central Bank.

It is understood soured loans with a face value of close to €2bn will be marketed for sale at the end of November, in a process dubbed Project Redwood. Irish lenders remain under pressure to swiftly resolve legacy-era debts as the ECB threatens more punitive measures on those banks still saddled with non-performing exposures (NPEs) that exceed the region’s average of close to 5pc of the total loan book.

Hundreds of staff within AIBS’s loan work-out unit – the Financial Solutions Group (FSG), which manages distressed loans across the group – are understood to be working on Project Redwood, as it races to conclude a deal ahead of annual results in March.

Sources said a smaller portfolio of non-performing loans at the bank – initially earmarked for a separate sale – has now been folded into Project Redwood. The bank remains on course to offload a further €300m worth of impaired loans by December, underscoring its determination to radically reduce its legacy book – a move that in turn frees up capital and increases the prospect of a special dividend. The smaller Project Pine book contains soured loans linked to assets in the UK, with over half the debts tied to assets in the North.
AIB declined to comment on the sales. But a bank spokesperson said in the first half the lender has cut its impaired loans – the most troubled portion of its NPE book – from roughly €9.1bn to €7.8bn. He said AIB “works through loans on a case-by-case basis” and added “we remain focused on reducing impaired loans to a level more in line with normalised European peer levels and will continue to implement sustainable solutions for customers who engage with the bank where feasible”.

The bank’s accelerated resolution of its NPEs comes as Permanent TSB also intensifies efforts to cleanse the balance sheet. The lender is now expected to push forward with a €1.25bn portfolio of toxic loans early next year. Yet as Investec’s Owen Callan pointed out the European Banking Authority’s efforts to standardise the classification of asset quality has led to a “less sympathetic” result for Irish banks. Portions of the legacy book that lenders view as performing are unlikely to be reclassified by the EBA meaning PTSB may be forced to sell its ‘healthy’ restructured loans.

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‘I wanted to retire by 50 so I could enjoy life. My advice? Start saving’

Beryl Dunne, an IT manager who lives in Bray, Co Wicklow, is semi-retired and said she had to ramp up her payments so that she could retire when she wanted.

“I wanted to retire by 50 so, health-wise, I could enjoy life. Also, I felt that by the time I came to retire the State pension wouldn’t be there,” she said.
“I went into ESB from college and joined its superannuation scheme. When I left after a year they paid back my contributions.

“I started a pension aged 33 in my next job, paying in the maximum amount, plus additional contributions. I left to become self-employed after nine years and left that pension with them. I was pleased how much it had appreciated.”

Ms Dunne (57) said other than the two years self-employed, she always paid in the maximum amount.

“Had I started in my early 20s I wouldn’t have had to do that. My advice is to start saving from the very beginning and you won’t miss it,” she said.
Ms Dunne, who is separated and has one daughter, said the first thing she did when she was self-employed was to pay off her mortgage. Then she pooled all funds when she joined her last employer.

“I was over 50 so they encouraged me to invest in a lifestyle pension, moving out of equities and into lower-risk cash or bonds. After 15 years there, I got sick and took redundancy aged 57. I spoke to Karl Daly, a financial adviser from Metis Life, and we split my fund into multiple Personal Retirement Savings Accounts, with Standard Life and Zurich. Now, when I like, I draw down 25pc from one of my tranches tax-free. Anything tax-free makes me happy.”

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Explained: Why women are losing out on their pension payments

Changes to the way the State pension payment is calculated were introduced in 2012.

The new rules hit women hard. They are typically losing around €35 in payments.

And they will not get the full €5 rise in the State pension announced in this week’s Budget.

Personal Finance editor Charlie Weston looks at all your questions about the changes and what they mean for women.
Why are women annoyed about State pension rules?

A: Many people, especially women, who have been reaching retirement age in the last few years are finding they are getting smaller pensions than they had been banking on. People who worked and made pay related social insurance (PRSI) contributions, or stamps as it used to be called, feel cheated. In effect, the goalposts were moved during the game.

Q: How many women are affected?
A: Some 35,000 pensioners are suffering from these pension cuts. But 23,000 of these are women, according to advocacy group Age Action. Those who retired before 2012 are not impacted.

What was the change?

A: The State pension is calculated by adding up the total number of PRSI contributions you make. This figure is then divided by the number of years between when you started work and when you are entitled to the pension. But many older women can find themselves punished by this system for taking time out of the workforce to raise a family. This is mainly because the weekly pension rate is calculated on the average number of contributions made over a working life.
Give me some more detail on that

A: Before 2012 there were four payment bands used to calculate how much of a State pension you get. Those with 48-plus yearly averaged contributions received the top rate of the pension payment. Those with between 20 and 47 contributions received 98pc, etc. In Budget 2011, then Social Protection Minister Joan Burton increased the number of bands to six. Crucially, band two was divided in three. And those in the lowest band, with 20 to 29 averaged contributions, got just 85pc of the maximum payment. Before this it would have been 98pc. The payments for what used to be bands three and four were reduced to 65pc and 40pc respectively.

Read more: Donohoe admits pension hit to women is ‘bonkers’
Which groups lost out?

A: The two groups of pensioners this change affects the most are those with between 20 and 29 yearly averaged contributions and those with between 10 and 14 such contributions. For those in the 20 to 29 contributions group, the changes mean a weekly difference of €35 per week.

Give me an example?

A: Say a person worked for a few months in 1968. This person then left the workforce to raise a family – during which time she would not have made contributions – before going back to work in 2000. In this example, the average number of pension contributions would be divided by 48 (the number of years between 1968 and 2016). In effect, the weekly pension rate would be much higher if the individual had not worked in the summer 1968, according to detailed research by Age Action.

But women were not supposed to lose out for raising a family?

A: The Homemakers’ Scheme partly addresses gaps in employment due to caring responsibilities. The scheme provides a disregard of up to a maximum of 20 years for those who take time away from the workforce, to care full-time for children or a person with a disability. However, it only applies to periods of caring from 1994.

Tell me about the averaging rule?

A: The situation is made worse by the “averaging rule” used by the Department of Social Protection to calculate the number of contributions made by a worker. This is where the number of PRSI contributions a worker has made is divided by the number of years between her first day of work and her retirement. This means that someone who worked for a few months in the 60s and then went back to work in 2000 gets a far smaller pension than someone of the same age who just started work in 2000.

This sounds very unfair to me

A: Yes, it is an unfair system. People are getting very small pensions because of a decision they made to go to work in the 60s and 70s. They are being punished for working.
Is there any hope of going back to the old rules?

A: Finance Minister Paschal Donohoe says it could be 2021 before the situation is rectified.

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The winners and the losers after Paschal’s ‘safe and steady’ Budget

Finance Minister Paschal Donohoe has delivered his first Budget and it’s safe to say it was a bonanza for nobody, but who has fared the best?

Social welfare recipients
Social welfare recipients are set to receive a €5 increase to their weekly payments. While the amount has been criticised by some, it is the second year in a row increases have been introduced after eight years with no hikes. The cause for celebration is further limited by the fact that it will be delayed until the last week of March, however.
Patients and medical card holders

Private patients with high monthly medicine bills will save €120 a year once the threshold for the Drugs Payment Scheme is reduced from €144 to €134.
All medical card holders will see the prescription charge fall from €2.50 per item to €2.
It means the maximum they will have to pay per month is €20, leaving them with €60 extra a year in their pockets.

There are around 500,000 medical card holders, covering around 1.3 million people, who will benefit from the cut that was first introduced for the over-70s last year.

There was a €200 boost to a key tax credit, the earned income credit for those who work for themselves, and they will also benefit from income tax and universal social charge (USC) changes.

But the self-employed will continue to pay an extra 3pc USC surcharge on income over €100,000.
Operators of small and medium-sized businesses will gain from a new incentive called the Key Employee Engagement Programme (KEEP), designed to help firms recruit and retain key staff.

Staff will get options to buy shares in the operation.

When they come to sell the shares they will pay capital gains tax of 33pc, rather than income tax, pay related social insurance (PRSI) and USC when the shares are sold.

The scheme is expected to be welcomed by the self-employed as a way to get people to work for them and stay with the company.

Smokers and sunbed lovers
Smokers have been hit again with another increase with the price of a box of cigarettes rising by 50c. Meanwhile, the VAT on sunbed services has also been hiked to 23pc. So not good news if you’re a smoker… or a tanner.

Both measures are linked to the Government’s action plan to lower cancer rates.

Boom-time buyers
Homeowners who bought their houses between 2004 and 2012 will lose their Mortgage Interest Relief on a phased basis from next year.

It had been hoped that the scheme would be extended in full.

Families where one parents stays at home are set to be €100 better off due to a rise in the home carer tax credit to €1,200.

However, families where both parents are working are set to benefit only minimally from the budget. For example a couple with a combined income of €55,000 and two children will be €8 better off per week thanks to changes to the USC.

But with no rise in the childcare subsidy introduced in Budget 2017 and no additional measures introduced to alleviate the cost of childcare, along with an unchanged child benefit

The Department of Agriculture and Food may have been given an extra €64m, but farmers are not happy about the increase in Stamp Duty rise that will add thousands onto the cost of land for many.

Michael Fitzmaurice has estimated that the increase from 2pc to 6pc will cost farmers in the region of €12m. That’s nearly half the €25m that was allocated to low-income farmers through the Areas of Natural Constraint (ANC) top up in the Budget.

Farmers are also aggrieved that they didn’t get a measure to allow them put away money in tax efficient manner for years when farm incomes are low, whey they also remain €500 behind employees in tax income credits.
Let’s call it a draw:

Fianna Fáil
Budget 2018 marks the second in three budgets under the Confidence and Supply agreement. The party can claim a few significant wins, including lowering the teacher-pupil ratios in schools. But any credit must be divvied up with Fine Gael and with a Budget that cast its net this wide there is only so much credit to go around – much like the available cash.

Middle income earners
The average worker will be €5 better off per week thanks to changes to two USC rates and widening of the tax bands. But in light of changes to the Mortgage Interest Relief scheme, lack of measures to address spiraling childcare and housing costs any gains are likely to be wiped out.

Leo Varadkar
In case you haven’t heard from the Taoiseach or Minister Donohoe this wasn’t an election budget and the measures included were not designed to be ‘election measures’- but if it was Fine Gael have emerged probably no better or worse off than they were previously.

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Nama: we won’t blacklist borrowers for loans

Nama’s top bosses have moved to pre-empt criticism of the agency’s new role managing the Government’s latest housebuilding fund, including telling the Irish Independent they’ll work with builders regardless of any previous disputes.

Since 2009 most of the country’s main builders have had some or all of their debt in Nama and in a significant minority of cases relations were strained or broken.
However, asked if builders who had a poor past relationship with Nama will be able to access loans from the new €750m Home Building Finance Ireland (HBFI) fund, Nama CEO Brendan McDonagh insisted they would.

There will be “no restrictions on borrowers if they have a business case” and a “viable proposition”, he said.
“We’ve all been through a lot,” he said.

In relation to criticism by some builders of Nama, the agency’s chairman, Frank Daly, said it went with the job.

“It’s business, it’s not personal,” he said.

The agency faces a legal challenge in relation to its existing role as a lender for housebuilding.
A group of five builders whose loans are not in Nama – New Generation Homes, MKN Properties, David Daly, Paddy McKillen and Michael O’Flynn – complained to EU Competition authorities, claiming use of Nama to fund rival builders amounted to illegal State Aid.

Nama’s existing housebuilding funds have been available since 2014, but only to Nama developers.

However, under plans unveiled by Finance Minister Paschal Donohoe in the Budget, a new vehicle, Home Building Finance Ireland (HBFI), will be funded with €750m from the Ireland Strategic Investment Fund (Isif).

Nama’s staff will manage lending the money to builders, with a target to boost housing supply by 6,000 units.
Both HBFI and Nama loans will be issued on the same terms and conditions.

It’s understood that means interest rates on senior loans of around 8pc, slightly above the level charges by the pillar banks for senior development loans.
Borrowers will have to have equity – typically that means the site itself debt free – with the loans going to fund construction.

Frank Daly rejected claims it lack the skills to drive a ramp up in construction.
“There is a claim that Nama knows nothing about funding and delivery of houses. It’s not true,” he said.

Nama’s in-house team includes engineers, quantity surveyors and planners who have the range of skills needed to drive house building, he said.

Agency chiefs said the team there is now experienced in build prices, sale prices and fit-out costs and will make “commercial, objective, evaluations” of any proposals made to them.
Nama is expected to sign a service level agreement with HBFI to manage the new fund.

Brendan McDonagh said €750m from Isif will fund construction of as many as 6,000 homes. Funds used for house building can be recycled twice in a two year period, he noted, as houses are built and sold. For Nama, the new role will make it easier to retain staff.

“People who are good will stay on for a few more years,” Mr McDonagh said.
“The Government has recognised that the skill-set here is an asset to the State and put it to use,” Frank Daly said.

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