Thursday, July 14, 2005

First Active has become the first financial institution to offer 100% mortgages in the Republic of Ireland. The bank previously offered 100% financing to professionals in finance and medicine, but is now to offer this product to anyone who can afford to meet the repayments.

The development is a huge boost for first time home buyers who have been struggling to get on the Irish property market in recent years due to the rapid increase in house prices. A typical first time buyer in Dublin with 92% financing would normally have to put down a deposit of €20,000-€30,000 in cash, but now have the option to produce no deposit.

First Active has said that 100% mortgages will be available across its entire range of mortgage products.

Note however that this is not necessarily an entirely positive development.

The United States and most of Europe have experienced a housing price bubble in recent years. A bubble occurs when buyers purchase a property not because its price is appropriate for its actual value but because they expect the price to significantly rise in the short term permitting resale with a profit.

In other words, the prices people pay for properties becomes divorced from the real value of the property; the purchase is speculative and depends purely upon the expectation that people will continue to buy properties in this way (e.g. without proper consideration of their real value).

The terrible weakness in this is that when the market corrects itself and prices fall to a level where properties are being priced at their actual realistic value, anyone holding a property loses a great deal of money, since the price they paid does not reflect the actual realistic value of the property.

This kind of shock to the housing market is extremely undesirable. Significant write downs in the value of property often significantly depress the economy as a whole.

Less than 100% mortgages force buyers to invest a significant amount of money in the act of purchasing their house, which tends to discourage purely speculative purchasing, thus helping to mediate house price bubbles.

With 100% financing, anyone who can meet repayments can speculatively purchase a property. This naturally encourages pricing bubbles.

Thursday, June 2, 2005

Darwin’s Ltd. opened a second location of their sandwich shop at 1613 Cambridge Street in Cambridge, Massachusetts, in late May. It is situated across from Cambridge Rindge and Latin School. Previously limited to one location at 148 Mount Auburn Street, the second store seats approximately 30 people and sells sandwiches, coffee drinks, locally made pastries, as well as some produce and snack foods. The establishment also provides free wireless access through the WanderingWifi service. The shop plays music during the day; during this reporter’s visit to the shop, selections played ranged from David Bowie to The Strokes. The store is air-conditioned.

Key differences between the original store and the new one include the unification of the cafe and the sandwich line now behind one counter, handicap accessible restrooms, no beer or wine sold at location, and a lack of a loyal customer base. Although the recent months have been slow, business is expected to pick up with the return of Cambridge area students this autumn.

While the original location of Darwin’s was recently cited for lacking sneeze guards before the kitchen counter, according to the Cambridge Chronicle, the new Darwin’s has acrylic sheets along the front of their sandwich counter. The original Darwin’s has installed the sneeze guard at the kitchen counter the day following citation.