Dan White answer your financial questions.
I HAVE steered clear of the National Solidarity Bond up to now, believing that 10 years was far too long a period to have my money tied up. Now I read that there is a four-year National Solidarity Bond being offered. Should I put money into this new, four-year National Solidarity Bond?
The four-year National Solidarity Bond is definitely a huge improvement over the 10-year version. The four-year National Solidarity Bond pays 1pc a year plus an 11pc bonus at the end. That works an annual interest rate of 3.56pc.
However, when the 27pc DIRT paid on the annual interest payment is stripped out the after-tax interest rate drops to just 3.31pc.
By comparison, savings certificates pay a 3.23pc annual tax-free interest rate over three years.
In addition, the vast bulk of the interest is paid up front. By comparison, if a saver cashes in his or her four-year National Solidarity Bond early, they will not receive a cent of the 11pc final bonus.
All of which means that, while the four-year National Solidarity Bond is an improvement on its 10-year predecessor it remains a badly designed product and is unsuitable for most savers.
I AM the landlord of a takeaway premises to the north of Dublin. I’ve been considering selling the lease, which runs for 499 years, as I am now in my mid-70s.
I wonder if there is any rule-of-thumb formula for working out what it might be worth.
Judging by the length of the lease, 499 years, I suspect that this is a ground lease, where the tenant pays rent on the site upon which the takeaway sits rather than the actual premises. If so, the rent Liam is receiving is almost certainly very low as there have been no new ground rents created in Ireland since 1978.
As Liam's takeaway is a commercial rather than a residential premises, any sale of the ground rent is covered by the earlier 1967 Landlord and Tenant Act. Under this act, if the ground landlord and tenant can't agree a price, the case is submitted to compulsory arbitration.
The arbitrator, usually the County Registrar, sets the price of buying out the ground at the amount of long-term Government bonds the former landlord would have to purchase to produce the same income as the ground rent. Unfortunately for Liam, while the 1967 Act gives the tenant a right to buy out the ground rent from the landlord, it doesn't give the landlord the right to force the tenant to buy.
In other words, if the tenant isn't interested in buying, then there is nothing Liam can do about it. Even if the tenant is interested in buying the ground rent, there is more bad news for Liam. Our recent economic and financial difficulties mean that the interest rate paid on Irish Government bonds has soared in recent months.
Fifteen-year Irish Government bonds, which pay a nominal interest rate of 5.4pc, are currently trading at less than 73pc of their face value. That translates into a real interest rate of 7.4pc.
This means that if he were to sell his ground rent now, the most that Liam could expect to receive would be 13.5 times his annual ground rent. In other word, if the annual ground rent was €100 then the best that Liam could hope to get would be just €1,350.
My advice to Liam would be to wait until interest rates fall back. If the real interest rates on long-term Government bonds fell to even 5pc, then the multiple that Liam could expect if he sold out would rise from the present 13.5 to 20 times the annual ground rent. Don’t sell now unless you absolutely have to.