She was talking to me after I had spoken at a lunch-time seminar on ways to control household spending. The seminar was for staff at one of the larger investment firms, an outfit with a focus on consumers.
This means the woman has access to plenty of good advice on investing. But she wasn’t listening when she came up to me after the seminar. It was one of those situations where someone asks a question when they are not really interested in the answer.
I insisted that property has a role in an investment portfolio, but stressed that a diversified investment strategy is crucial. She wasn’t listening. She had a buy-to-let property and was planning on acquiring a second one.
No doubt she will have been cheered by the move by ICS Mortgages, which is owned by Dilosk, to offer 15-year, interest-only, buy-to-let mortgages. Fianna Fail finance spokesperson Michael McGrath has raised concerns about the interest-only mortgages, which he said posed very serious risks.
Dilosk is a regulated lender which bought the ICS Mortgages brand from Bank of Ireland in 2014. Its chief executive, Fergal McGrath, has said he is not concerned about the interest-only product. He said, under rules set out by the Central Bank, people seeking a buy-to-let mortgage have to have a deposit of at least 30pc of the property’s value.
But the fear is that even more ordinary people will be encouraged to take out buy-to-let mortgages when they can avail of the likes of an interest-only option. This is despite our toxic history in this area. Around 30pc of investment mortgages are in arrears.
Property investment fans will argue that there are few alternatives. Banks and credit unions are paying little or nothing in interest on deposits. And anything that is earned is taxed at a steep rate of 38pc in Dirt tax.
The exit tax on investments sold by life insurance and investment firms remains at 41pc. Banks have lobbied in the past to ensure the juicy tax-free interest rates that were paid on State investments available through An Post have been decimated.
The big danger is that more people will be encouraged to take on buy-to-let mortgages because of interest-only options such as those offered by ICS.
Two things should happen to counter this risk – the Central Bank should ban interest-only investment mortgages, and interest paid on An Post State Savings should rise. If people had a decent alternative, they might not be so keen on property.