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

Discussion in 'Mortgage arrears & negative equity case studies' started by Brendan Burgess, Feb 27, 2010.

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  1. Brendan Burgess

    Brendan Burgess Founder

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    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.
     
  2. Brendan Burgess

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

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

     
  3. Brendan Burgess

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    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?

     
  4. Brendan Burgess

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

    9 November 2006 Why speculation about house prices is banned on Askaboutmoney
    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?
     
  5. Brendan Burgess

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    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.


    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.
     
  6. Brendan Burgess

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    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)

    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.
     
  7. Brendan Burgess

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    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)


    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!
     
  8. Brendan Burgess

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    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
    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:

    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
    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.
     
  9. Brendan Burgess

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    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.
     
  10. Brendan Burgess

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    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


    Read the full article here


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

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    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



    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.
     
  12. Brendan Burgess

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

    Brendan Burgess on Interest only for home mortgages

    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.
     
  13. Brendan Burgess

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    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


     
  14. Brendan Burgess

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    Last edited: Feb 6, 2017
    Re: What I have actually said about property, prices and borrowing

    Brendan Burgess says Fill your boots with shares

    From the same clip above
    Here are the ISEQ total return indexes which include reinvested dividends.


    .ISEQ overallISEQ General
    16-Sep-087,1365,419
    16-Sep-096,0785,715
    16-Sep-105,1145,414
    16-Sep-114,7455,481
    14-Sep-126,3987,394
    16-Sep-138,5069,620
    16-Sep-149,73710,791
    22-Mar-1512,65414,275
    06-02-201713,72416,341
    Change92%201%

    - I did say "in a few years' time"
     
    Last edited: Feb 6, 2017
  15. Brendan Burgess

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    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.

    And ...



    And you can read my full interview in that context:




    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?
     
  16. Brendan Burgess

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

    Brendan Burgess in Irish Independent, 18 August 2007:

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

    I was in good company

    Chairman of the Professional Insurance Brokers Association 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.
     
  17. Brendan Burgess

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

    Indo article August 14th 2007

    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.
    Brendan Burgess is the founder of consumer finance website Askaboutmoney.com 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.
     
  18. UFC

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    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.
     
  19. UFC

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    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.
     
  20. tyoung

    tyoung Frequent Poster

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    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
     
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