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18/09/2021

Making Cents: Your financial questions answered

Making Cents: Your financial questions answered

Got a question for Liam email him at liam@harmonics.ie

THIS week and next, I’m going to devote my column to sharing with you a sample of questions I received from readers over the past couple of weeks and the answers I gave to each.

Question

Liam, I have a mortgage with Ulster Bank on my primary residence and the interest rate they’re charging me is 5.09%. I owe c. €100,000 and my monthly repayments are €1,342. The rate seems very high. If it is, what should I do? I’ve just lost my job so any monthly savings however small are important to me.

Answer

The rate is incredibly high and not sure why or how you ended up with such a high %. But don’t worry because what we’re going to do is reduce the rate for you by 2.74%, which will reduce your repayment by about €126 each month.

When I received your email, I contacted Ulster Bank and following a discussion with them, you can expect to receive a rate change letter of authority in the coming days, outlining a number of new interest rate options you can choose from.

And the rates they’re offering range from 2.2% fixed for 2 years, right up to 3.5% for their variable rate.

I personally like their 5-year fixed at 2.35% and that’s the one, I’d recommend you proceed ahead with.

And I’ll continue to follow up with them and find out the reason why you were being charged such a high rate. Perhaps there was a mistake made on their part, and if that was the case, you could be due money back. Anyway, let’s find out and see.

Question

Liam, we have the opportunity to take up a rights issue on shares in a company my husband works for, at €1.86 per share. If, we were to take up the whole issue, it would cost c. €50,000.

We have monies invested with you and I’m wondering is it better to leave that money where it is, rather than taking it out and investing it into this share issue? Any top of the head thoughts would be appreciated as they haven’t given us much time to make up our minds.

Answer

In order to answer your question, you've got to put the potential of investing in one share i.e. share issue versus investing in 50 others, which is what’s happening with your current investment account.

Since your account has been opened 12 months ago, it has delivered a return of +€10,500, which is an increase of +21%. If, you look at how the share price of the company you are considering buying into performed over the same period, you’ll discover it increased by 13%.

So, when you put them alongside each other, the multiple company investment strategy over just one has performed 1.6 times better. With your existing investment, you are investing in 50 different companies, in 5 different asset classes, with no concentration on a single share or particular sector.

It’s important to point out, that with a rights issue, in the past, markets have in some instances viewed this a warning sign that a company could be struggling, which has led existing investors to sell their shares, and the knock-on effect is that the share price goes down.

And with an increased supply of shares available following a rights issue, it could be bad news for a company's market value. I'm not suggesting this would happen with the company you are considering investing into, but it's something to be cognisant of, nonetheless.

The safe play I think is having that diversity in multiple companies over just one, but again it's a difficult one to call, but my gut when I put them alongside each other as well as what we've seen share values with other companies post previous rights issues, the safer option is the multiple investment route.

Question

My partner was born in Romania but has lived here for the past 10 years and currently rents a house. In Romania he owns a flat which he is currently selling to use as a deposit for a mortgage in Ireland. Once sold the money will be transferred from a Romanian bank account to his Irish bank account. We are not sure whether in this case he needs to pay Capital Gains Tax or not and wanted to ask for your advice?

Answer

If you dispose of a property in another country, and you are tax resident in Ireland, you must pay Irish Capital Gains Tax (CGT) on any gain or profit.

And you may have to pay CGT in the country the property is situated in as well.

However, you can deduct some or all of the Romanian CGT, your partner pays when calculating how much Irish CGT he owes.

The amount that he can deduct will depend on whether there is a double taxation agreement in place with Ireland and Romania and the good news is there is. So, let's say he sells the Romanian property for a profit of €30,000 and his CGT liability in Romania is €5,000, the amount of CGT he pays in Ireland is: €30,000 x 33% = €9,900 less €5,000 = €4,900.

Question

Liam, I’m attaching a statement from a property fund I have in place which I originally set up back in the days of the SSIA’s. As you can see it cost me money last year to have it. I’m interested in what you think about it. The value decreased significantly during the property crash but has pulled back up a little, but is still well below what I originally put in. What do you think?

Answer

I had a review of the documentation you sent on, and the two things that jumped off the page at me were (a) a very high annual fund charge at 2.05%. So, regardless of how the fund is performing, they are still getting 2.05% which is fine if you were making 5 X of this charge, but when the fund lost money last year and they still got paid, who’s taking the risk here? Certainly not them.

And (b) a hugely poor performance last year at -9.06% and when you factor in management charge you really lost, -11.11%. Which is pretty shocking in a year when I’m seeing average returns of +18%, so the differential in one year is close to 30%.

When I look at how the fund has performed this year, YTD it’s +2.81%, but again in real terms it’s still negative 0.04% i.e. 2.81% - (2.05% (Charge) + 0.8% (inflation))

If I was to ask myself a question, what would I do if I were you, after reviewing the documents, it’s a bit of a no brainer. I would give the institution their 6 month notice and get the money out of this account as fast as I could. And when the funds are returned, I would re-invest it into much better diversified accounts, or use it to top up pension funds, or spend it, but for sure I think it’s time to cut ties with this account.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie

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