Blog Archive - February 2011

Apartment Owners and Service Charges (Irish Times)

Cash-strapped apartment owners are not paying service charges resulting in a fall in maintenance standards at many developments

WHILE REPORTS of home repossessions and negative equity are a constant reminder of the mess we are in, relatively little attention has been paid to new findings which show that there has been a fairly serious fall-off in maintenance standards at many of Dublin’s apartment enclaves.

“The service charges are too high”; “the bins haven’t been collected for weeks”; “the lift is not working”; “security staff have been withdrawn from the site” – these are some of the problems causing frustration and annoyance to apartment owners and their tenants. The reason for the reduced level of services is not – for once – the ineptitude of the management companies but the ever increasing number of owners failing to pay their service charges.

A recent survey by the Society of Chartered Surveyors and the Irish Property Managers Association has shown that half the property managers who responded estimated that up to 20 per cent of owners had not paid up in the past year. The remainder put the number of defaulters at between 20 and 40 per cent.

Not surprisingly, apartment blocks built in the past five years are worst affected because a high proportion of the units was bought by investors who are now in negative equity. As well as having to cope with an increased number of void periods, these owners have had to settle for rents up to 25 per cent lower than in the boom times.

With mortgage rates certain to rise later this year, the situation can only deteriorate further. A combination of all these factors, plus the fact that the rental market is over- supplied in many areas and that there is every likelihood that increased property taxes are on the way, could mean that the residential investment market will remain dormant for a considerable time to come.

The second group falling behind with their service charges are – wait for it – developers who built the apartment blocks and opted to cauterise their losses by fitting out unsold apartments and putting them on the letting market. Never mind the fact that by offering entire blocks for rent almost at any cost to ingratiate themselves with their Nama bosses they have frequently undermined their very own clients who often paid them over the odds for the apartments. A reduced cash flow since Nama started calling the shots has meant that for many developers the service charges are well down the list of priorities. The reduced funding has meant that cleaning, maintenance and security have either been reduced or dropped in many developments.

However, the largest property managers, Wyse, who handle apartments in up to 200 different locations, say by and large they have managed to avoid maintenance cutbacks by persuading service providers to reduce their charges. “However, with up to 30 per cent of service charges remaining unpaid, mainly in newish apartment blocks, we are finding it increasingly difficult to meet our obligations,” says managing director Ben Gough.

Many of the other property managers have already cut back on services because of the shortfall in funding and the possibility that the number of defaulters could increase further if the economy continues to deteriorate.

Poor maintenance means that owners of apartments who pay up can take as big a hit as those who do not. Once maintenance and repairs are reduced or suspended, the overall apartment block suffers, leading to a depreciation in values. When an apartment scheme is allowed to deteriorate – and there are any number of examples – it is a difficult thing to reverse.

http://bit.ly/eawtOS

Owner-occupiers, Landlords and Tenants of Aras Na Cluaine, Yellow Meadows, Clondalkin are concerned following recent newspaper articles re High Court Proceedings against the Developer in relation to issues raised by the fire officer.

At SCK Group we have been liaising with Aras Na Cluaine Management Company Ltd to ensure that the issues are satisfactorily resolved.

Below are relevant links

http://bit.ly/foImfN

http://bit.ly/ehd4Lw

Mortgage News

Below some mortgage information from yesterday’s Sunday Business Post.  Good news for those with Tracker Mortgages!

With lenders likely to hike interest rates, mortgage-holders and first-time buyers need to look at what options would suit them best

One of the big stories in the news last week was that Permanent TSB, Ireland’s biggest mortgage-lenders, was to raise its standard variable rate (SVR) by 1 per cent, bringing it up to 5.19 per cent.

That move was followed by the news that Ulster Bank planned to increase its mortgage rates for SVR customers by half a point, from 3.85 per cent to 4.35 per cent, from March 1.

It is likely that such moves will be followed by other mortgage lenders, as they try to repair their balance sheets.

For someone with a standard variable rate mortgage of €300,000 with 25 years to go, a rise of 1 per cent would add around €170 per month to their monthly repayments.

If you have a mortgage or are considering getting one, what should you be doing in light of this latest rate rises?

Tracker variable rates

If you are on a tracker variable rate, your lender cannot raise your interest rate above a margin agreed in your original loan offer, so last week’s speculation about lenders hiking rates doesn’t apply to you.

Your interest rate will rise only if the European Central Bank (ECB) decides to increase rates across the eurozone.

Following last Thursday’s ECB governing council meeting, the ECB base rate remains unchanged at 1 per cent, which it has been at for 21 months, though rising inflation in the eurozone has raised concerns that rates may be increased later this year.

But for a domestic mortgage customer, tracker variable rates still represent far better value and offer greater security than standard variable, so I’d be reluctant to recommend that anyone switch from a tracker, especially as tracker variable rates are no longer available.

If you give up a tracker, it’s highly unlikely that you’ll ever get it back, so hang onto it.

Fixed rates

If you’re on a standard variable rate, you may want to consider fixing your interest rate.

Ask your lender what its current fixed rate offerings are. If any of the fixed rates is less than or very close to your current standard variable rate, this would be an opportunity to fix.

Be aware that fixed rates are inflexible and charge penalties if you redeem your mortgage during the fixed period.

Consider switching

Contrary to popular opinion, some lenders are still happy to take on ‘switcher’ business, or people moving their mortgage from one lender to another.

Typically, your mortgage balance would need to be no more than 80 per cent of the current value of your home to qualify for a switch.

Some lenders, such as ICS, will accept switches only where the mortgage is below 50 per cent of value.

Others, such as AIB, won’t accept switcher business at all. Switching lenders does cost money: you will pay your own legal costs and for valuation of the property.

So before switching, you need to establish that the improvement in rates and reduction in repayments justifies the cost.

For example, if you have €300,000 on your mortgage with 25 years left and your own lender offers you a five-year fixed rate of 5.75 per cent, your monthly repayments would be €1,887 per month for the next five years.

If you switched to a lender offering a five-year fixed rate of 4.8 per cent, your repayments for the next five years would be €1,719 per month, a saving of €168 per month.

Over the five-year fixed period, you would save over €10,000 in repayments. Your legal and valuation costs for switching should be €1,200 or €1,300, so, in this example, it would make a lot of sense to switch.

This is the sort of exercise you or your adviser need to do before considering switching lenders.

Subsidised switching

KBC Homeloans is offering to pay €1,000 towards the cost of switching your mortgage to it and will also refinance other debt, within limits.

If you switch away from KBC within five years, it will clawback this €1,000.

While this is obviously an attractive offer, you still need to compare rates for your particular mortgage to make sure that it represents value for you. Compare other lenders’ rates and repayments with those of your own lender and KBC.

Make sure you factor in the legal and valuation costs of switching to another lender, the €1,000 subsidy if you go with KBC and the fact that staying with your existing lender incurs no costs at all.

If considering switching to KBC or any other lender, you need to qualify for the amount requested under the new lender’s criteria.

If, for example, you or your partner has lost a job since you first took out your mortgage, you may not qualify to switch.

Equally, if your repayment or banking history is less than pristine – eg late or missed repayments on your mortgage or other loans, or exceeding your overdraft on your current account – you may have difficulty getting a new lender to take you on.

Build up a war-chest

If you reduce your monthly repayments by choosing a fixed rate or switching to a different lender, don’t just let the saving be absorbed into your day-today spending.

Unless the saving is very large, you just won’t notice it after awhile.

Instead, set up a separate regular savings account, with a standing order paying the savings into it each month.

For example, if you manage to reduce your mortgage repayments by €150 per month, start a savings account for this €150.Then,when interest rates eventually rise, you’ll have a buffer to help you with the increased repayments.

Liam D Ferguson is principal of pension, life and mortgage broker Ferguson & Associates and www.FergA.com

ECB interest rates

At last Thursday’s European Central Bank (ECB) meeting, the bank’s governing council decided to leave the base interest rate unchanged yet again.

The base rate, which directly affects all tracker variable mortgage repayments and indirectly affects standard variable repayments, has been at a historic low of1 per cent for 21 months.

Jean-Claude Trichet, president of the ECB, said at last week’s meeting that inflation across the eurozone, which has been rising recently, warranted ‘‘very close monitoring’’, a hint that the bank could take action to dampen inflation by raising the interest rate.

On the other hand, he also said the current ECB rate remained ‘‘appropriate’’, a signal that a rate increase may be some time off yet.

At their meetings on the first Thursday of each month, ECB bosses detail their current feelings about the eurozone economy, as well as announcing the base rate. The speech is closely analysed by economists, bankers and anyone with an interest in the future of ECB interest rates, as it usually contains clues about what the bank plans to do over the coming months.

For example, in November 2005 Trichet said the bank was ready ‘‘to moderately augment the present level of interest rates in order to take into account the level of risks to price stability’’ and that it would ‘‘withdraw some of the accommodation which is in the present monetary policy stance’’. This was interpreted by many as a clear signal of the intention to raise interest rates. Rates duly went up in December 2005.

This year, inflation in some of the bigger eurozone countries is clearly a concern, as it could force the bank to raise rates.

However, last Thursday, Trichet referred to ‘‘short-term upward pressures’’ which could mean that the ECB considers the recent inflation rise as only temporary. He also said that ‘‘inflationary pressures over the medium and long term should remain contained’’.

Reading between the lines of last Thursday’s speech would suggest that the ECB is in no hurry to raise rates just yet

Many landlords will be relieved to read in today’s Irish Times of the Daft report which shows that Rent Costs have levelled out in Ireland.

THE COST of renting residential property in Ireland appears to be levelling out, according to a report by property website Daft.ie.

Rents fell by just over half a per cent last year compared to a 15 per cent drop in 2009 and 10 per cent in 2008. The largest drop, of over 7 per cent, was recorded in Leitrim, which also had the cheapest rentals in the country at an average of €467 a month.

Rents for Kerry dropped 7 per cent to an average of €617 and, while rents in Wicklow dropped by 3 per cent last year, it remained the most expensive place to rent outside the capital, with an average monthly charge of €922.

Dublin city centre saw the largest increase last year going up by almost 3 per cent. The average rent there was €1,134, but it did not top south Co Dublin where the average rent was the most expensive in the country at €1,303. It increased 2.2 per cent last year on 2009.

Rents in north Dublin city fell by more than 2 per cent to an average of €985.

Rents in Offaly were unchanged at an average of €604 a month and in Galway and Cork cities there was very little change, with average rents at €804 and €824, respectively.

The availability of properties also dropped; the total number available to rent nationwide fell from a high of over 23,000 in mid-2009 to less than 16,000 at the beginning of this month.

http://bit.ly/eHo4ly

Read the full Daft report on:

http://bit.ly/eAXLv

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Seamus C. Kane T/A SCK Financial Services is regulated by the Central Bank of Ireland