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Who’s going to Drive You Home?

During the economic downturn, there was a significant period of time in which seeing a brand new car straight off the forecourt could have been seen as a novelty. Oftentimes people looked out for brand new cars on the roads, just to take a look and see what new treats loomed on the horizon of hope. In more recent times however amidst Ireland’s continuing recovery it is becoming more and more common to see brand new cars on the roads, particularly since the licence plates are now split into two halves of the year and it is easier to distinguish the latest models. This might lead us to believe that there is more disposable income available to workers, but the reality may be quite different.

Personal Contract Purchase (PCP) finance has fast become one of the most popular methods of car financing available in Ireland. PCP is an increasingly popular method of car finance due to the low repayments offered. Utilising a perceived expected residual value at the end of the term to reduce monthly payments, it seems a much cheaper and easier option for many car buyers. Many dealers also offer the option to upgrade to a new car at the end of the term using the expected value left on the previous, making this a popular option for anyone hoping to upgrade on a regular basis without having to empty their pockets on the spot.

Recently, The Society of the Irish Motor Industry (SIMI) has commissioned a report on PCP finance to be completed by Grant Thornton. In the US defaulting on these types of loans has spiked in recent years and there is a fear that falling into the same traps could have serious negative results for the Irish car market. This fear is expounded by the fact that PCP finance is done through car dealers and not through the usual financial avenues. There are no specific regulations for PCP finance in Ireland and this increases the worry around this product, and it is often left in the hands of either dealer or borrower to ensure that all parties are fully informed. Naturally, seeing a brand new car at a low monthly cost can often cloud judgement, sometimes leaving buyers in more debt than the car was worth. This lack of regulation is troubling for both buyers and dealers as Fianna Fáil finance spokesman Michael McGrath recently stated:

“As of now, nobody in the CCPC [the Competition and Consumer Protection Commission], Central Bank or Department of Finance knows how many PCPs exist and, crucially, how many customers are defaulting.”

As with all industries there is the fear that a lack of regulations may lead to a serious slip in standards. PCP is obviously an attractive option for those wishing to stay abreast of the latest models and stay loyal to one manufacturer, but with so much uncertainty plaguing the ideologies of this finance option there can be no guarantees. Our advice is to ensure that you have all of the information available and if in doubt get a second opinion on the deal you are being offered to ensure that the payments are feasible and you will not be left struggling.

Should you require any help, guidance or assistance on any business or financial matters please don’t hesitate to contact us here at EcovisDCA where we will be delighted to help.

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

REFINANCING – COVERING YOUR ASS..ETS

After suffering through some harsh financial times in recent years, when we hear phrases such as cash flow boosting, restructuring and refinancing one of two feelings may occur to us. We either are stricken with more fear than that which occurs on Sunday evenings as we imagine all that we have built into our company walking out the door on us (“anything but the beanbags please, they are our only link to trendiness!), or the clouds part and we may think we hear the angelic chorus of our financial salvation.

 

The refinancing of assets sounds like a dangerous road to go down, and can inspire more than a bit of hesitancy when the idea is brought up, but restructuring and refinancing of your assets may be the one thing standing between your business and the ultimate success of overcoming financial obstacles. In recent years it has been found that this unlikely alternative can ultimately help businesses in financial difficulty, in particular SME’s to survive through tough times.

 

The refinancing of assets involves financing assets you already own in order to unlock some much needed cash flow over a period of time. The money borrowed in this way is secured against the value of the existing assets. The cash tied up in these assets is then released in order to allow these funds to be utilised in other ways. This may involve the restructuring of existing loans and the setting out of a new repayment schedule, perhaps extending the period of an existing loan. Refinancing can be an excellent way of unlocking cash from assets you already own such as company cars or general machinery and equipment.

 

Many SME owners may not be aware that this is a viable option for their business to boost cash flow and engage in new opportunities. Whilst refinancing at the present moment may be primarily geared towards the SME market, it isn’t just an option for SME’s. The refinancing of assets is also suitable for larger companies who already have strong assets, as this can generate some extra funds that may ease any financial pressure.

 

Of course, refinancing does come with its own set of risks and you must seriously consider your repayment options and capabilities before engaging in this activity to ensure that you do not set your business up for further complications down the line. Once you confirm your repayment abilities and set out a plan you are comfortable with, this can be an easy way of freeing up cash within your business at a time when it might be most needed, allowing you to invest further in important projects or perhaps even take on new and exciting opportunities.

 

If you are interested in refinancing some existing assets within your own company, or just curious as to how you would go about this give us a call here at DCA Accountants and we would be glad to talk you through your options.

DEPOSIT RATES: HOW LOW CAN THEY GO?

In recent months, it has been reported that Irish retail rates have slumped whilst the ECB has kept its refinancing rate at 0.05% since 2014. It has been suggested that the stasis of interest rates may not prevent deposit rates from continuing to slide. Recently, Irish deposit rates have taken a steeper turn than those in Mainland Europe.

The Central Bank’s figures show that Irish savers earned an average rate of 1.83% on deposits since September 2014, this rate then dropped steeply again to 0.98% by November 2015. Despite the ECB remaining steady in its rates, the only distinguishable trend for Irish rates seems to be a downwards trend, with retail deposit rates already steadily inching towards zero.

The ECB was the first major bank to edge towards zero in 2014, and many have since followed suit. This has not been a trend that has been specific to retail rates however, as we have also seen a steep decline in corporate rates, with recent reports suggesting that some banks are now offering negative interest rates to their corporate customers.

What are negative interest rates, and what can they mean for you? In this scenario the bank does not pay a return to keep its money for you, but instead charges you as the client for doing so. As a result, you will then be effectively paying the bank in order to keep your money there. This can have both positive and negative consequences.

Danish banks were the first to implement this idea of negative interest rates, and are now passing this option on to customers. This is a fairly new but commonplace practise in many Euro Zone banking systems with Sweden also recently adopting the practice. Chief economist for Denmark with lender Handelsbanken, Jes Asmussen has been quoted as saying:
“I don’t think we’ve seen the last of this trend. When I trained as an economist, negative rates weren’t in the textbooks, but that’s the world we live in now.”

Certainly, many Euro Zone banks are now offering their customers negative rates, it remains to be seen however if Ireland will follow suit in this practise, but plummeting rates would indicate a strong possibility.

MORTGAGE WOES KEEP BUYERS ON THEIR TOES.

Mortgage rules have been a point of contention in Ireland for some time now and whether house prices fall or rise, it has become increasingly difficult for those hoping to gain footing on the first step of the housing ladder. Last year, mortgage rules were changed to mean that only 3.5% of income can be borrows, and there must be a 10% deposit on all mortgages up to €220,000, and a further 20% on any cost above this figure.

 

At the time of this change it was suggested that these rules would be in place for a period of a year and then re-examined. As they were put in place in February last year, all eyes will be on these rules to see if there is any change which might allow for easier purchasing. DNG have suggested that they would like to see the borrowing limit raised to 4% and the 10% deposit rule extended to €300,000 as they have seen over the past year that many people are becoming trapped by these rules and are unable to buy due to higher house prices and stricter rules.

 

It has been reported this week that we may see an even bigger shake up in the mortgage industry. An Australian lender, Pepper is reportedly set to offer new incredibly competitive mortgage rates which will target first-time buyers in particular. This arrival of a new lender is expected to push current Irish lenders into offering new lower rates in order to respond to competition and demand.

 

Already since the announcement we have seen Bank of Ireland offer a new bonus. This bonus would see them add 10% to first time buyers onto their existing deposit savings. Additionally, Bank of Ireland were already offering 2% back of every new mortgage.

 

Pepper is said to be set to offer rates as low as 3.55% for both first time buyers and those looking to switch lenders. Pepper Ireland boss Paul Doddrell has suggested that Pepper will also be first in line with offers for those who have found themselves refused by other banks, including those who are self-employed. It is suggested that Pepper will also be able to lend to those who found themselves in arrears during the financial crisis, but have now found their way back to meeting payments.

 

Whilst these new offers may not be a complete end to Irish mortgage woes as these offers will only be available through brokers, the suggestion of another adjustment of the overly tight mortgage rules will be a welcome one for many first time buyers and prospective first time buyers. It is hoped that we will see a general reduction in rates, with the onset of further competition in the Irish mortgage market. If you require assistance with your own or your company’s finances whilst hoping to gain a mortgage, please don’t hesitate to contact us here at DCA accountantswhere we are always happy to help.

SBCI LOANS

Strategic Banking Corporation of Ireland

In March of this year, a new low-cost loan fund was announced by the SBCI. This new fund could see SMEs and the farming sector have greater ease of access to much-needed funds through some of the country’s major banks. As of late March, its board of six directors has been confirmed, taking this from a pipe dream to a very real and tangible option for the growth of smaller Irish businesses.

This fund will offer long-term working capital through major lending institutions. Its purpose is to offer SMEs and the farming sector more flexible products than are currently available to them. They will offer low-cost funding to financial institutions. The idea being that these savings will then be passed on to SMEs. AIB and Bank of Ireland have already signed up as partners.

So what is the SBCI?

The SBCI is the Strategic Banking Corporation of Ireland is a new bank launched in the last quarter of 2014. It is hoped that it will become the primary source of funding for SMEs in coming years with the Government hoping that over €5billion will be made available to SMEs in the future.
The initial funders for this new banking venture are the Ireland Strategic Investment Fund (ISIF), the European Investment Bank (EIB) and the KfW German promotional bank.
The SBCI is a strategic SME funding company with the primary goal of creating access to flexible funding for Irish SMEs. The SBCI aims to:

  • Provide flexible products with flexible repayment options.
  • Provide lower cost funding to major lending institutions to be passed on to SME’s and the farming sector.
  • Create real market competition for new entrants to the SME lending market.

AIB are currently offering customers looking for a new business loan of up to €30,000, an answer within 48hours. They are also offering loans at a 2% discount from their Standard Business Loan Rate. Funding of up to €5m for the growth and expansion of your business will be made available. Their terms will be between 2 and 10 years.

Is a loan with SBCI the right choice for your business?

These loans are open to most SMEs. This form of funding is open to your business providing it meets the following criteria:

  • The company must have a turnover of €43m or less.
  • The company must not be part of a wider group of businesses.
  • The company must have less than 250 employees.
  • The company must have a significant presence in Ireland.
  • The company must have less than 25% of their capital held by public bodies.
  • It is important to bear in mind that your chosen lending body will need to share your information with the SBCI

We would advise consulting with your local participating lending body in order to ascertain your company’s eligibility for this scheme. If you have any queries at all about this fund and how it could benefit your business, please don’t hesitate to contact us at DCA Accountants.

ULSTER BANK LOAN REFINANCING

The final loan sale for the parent of Ulster Bank RBS (Royal Bank of Scotland) is due to be completed in September 2015. The final sale of the ‘Project Aran’ non-performing loan portfolio to Cerberus in December 2014 saw the disposal of the loan book relating to property borrowings. The focus has now shifted to the Small and Medium Enterprise (SME) lending book.

 

Following on from this, Ulster Bank have now agreed to allow borrowers apply to refinance existing debts through a third party bank. The hope is that all offers would be submitted by February 28th 2015 with full financing to be completed by March 31st 2015.

 

So what does this mean for you should you wish to pursue this option?

 

With such a tight timeline we would advise that all borrowers should be swift and thorough in compiling and submitting their documentation. Ensure ahead of time that all of your documentation is present and correct and that all points and requests are backed up with the valid paperwork. It might seem like an obvious request but even the smallest omission can cost you valuable time. With such a short period of submission, there is unlikely to be time allocated for re-submission.

 

Bank of Ireland are said to be gearing up to refinance a high volume of Small Business Loans from Ulster bank ahead of this portfolio sale, in a move similar to that which occurred with the Government Credit Guarantee scheme, which has been extended to cover business whose lenders are/were leaving the Irish Market. This scheme was originally only available to new loans but the decision was made to open it up for refinancing options with the move of Danske bank among others out of the country.

 

The issue for borrowers hoping to opt in to this refinancing offer of Ulster Banks is of course in the short timeframe allotted for submission so organisation is key and, as always DCA Accountants are here for you should you require assistance.

NEW MORTGAGE RULES

The Central Bank’s much debated and often bemoaned stricter mortgage rules were finally officially announced last month and officially put into place only last week.

 

Under these new tighter guidelines first time buyers appear to have business as usual as they can continue to apply for a 90% mortgage up to a limit of  €220,000. Anything above this limit will be subjected to the new 20% deposit requirement. Given that the average house price in Dublin is approximately €269,000 (according to latest published results from myhome.ie) it would seem unlikely that many buyers will escape the clutches of this requirement entirely.

Those looking to trade up on their existing homes will be entirely subjected to the 20% requirement for the entire sum of their loan which has caused concerns that many young couples and families may find themselves ‘locked out’ of the property market or, having already taken a step onto the first rung of the property ladder in easier financial climates, may find it impossible to take the next step, or fall off completely.

 

There will also now be a cap on the amount that can be loaned, something that banks and mortgage lenders previously had left to their own discretion. This sees lenders being restricted to only borrowing 3.5 times their income. Given that there is massive disparity between wage scales across various sectors, this rule would seem to leave those in lower earning sectors out in the cold.

 

It was reported last week that banks have been urging mortgage defaulters to seek a familial ‘dig out’ to help them meet their mortgage repayments.  These new tightened mortgage rules could now see buyers returning to the ‘bank of Mum and Dad’ model of purchasing in order to meet the deposit demand. It was recently reported that the Credit Union will be willing to allow parents to borrow significant amounts to assist with their children’s deposit as the prospective buyer themselves would be unable to take out a loan.

 

As the Capital Acquisitions Tax on gifts currently allows an un-taxed amount up to €225,000 we may well expect to see these rules also tightened. As it stands, without the addition of a parental gift the average couple can expect to be saving for at least four years to meet their deposit requirements for first time buying, whilst those trading up may well be reliant on these so-called ‘dig outs’ when they have outgrown their current dwelling.