Hi Bank Manager. Thanks for those helpful comments.
One of the problems I have found in talking to lenders, bank managers and the Central Bank is that their attitude is "This is how it's done" rather than asking why? Their innovation is limited to "How can we exploit the customer's ignorance to our advantage?" or "How can we innovate to get market share?"
There is no conflict between treating customers fairly and making profits. If lenders innovate in a way to help and not confuse borrowers, they should become a market leader.
1) Fair mortgage rates i.e. a lot lower than the current rates
Market/competition will dictate this....
That is the point I am making. Most lenders when they come into a market take the price of the current market and don't bother reducing them to where they should be. So Pepper obviously figured out: This is a very profitable market - we will take some of that without reducing prices.
4) No tricks or gimmicks to hide high rates
Not sure what you have in mind here - all retailers will add incentives to try and differentiate their products - mortgage providers will be no different - as long as pricing is clear wouldn't have thought this to be a major issue...
The 2% cash back is the worst offender here. It ties in the borrower for 5 years into high mortgage rates. And it discourages switchers and new entrants. This ties into the fair and lower mortgage rates. They should try to get new business through attractive, lower rates instead of through gimmicks.
5) A tracker
Ideally a tracker for the duration of the mortgage. Of course,they won't be able to do cheap trackers ECB +1%. But something like ECB +2.5% for <50% Loan to Value
If they can't do trackers for the full length of the mortgage, then a tracker for 3 years or 5 years.
Mortgage providers have lost their shirts on trackers - you'll wait many a long day for them ever to go down that road again - indeed it would be irresponsible of them to do so....
They lost their shirt on trackers because of the margin of 1%, not because they were trackers as such. The UK lenders offer trackers. The Irish lenders offer their commercial customers loans tracking Euribor and Costs of Funds. There is nothing wrong with trackers.
6) A rate cap. "Whatever happens the ECB rate the rate charged by us will not exceed 5% over the next 10 years."
And when cost of funds exceeds 5% and mortgage providers are again losing their shirts on mortgages - you and other financial commentators will articulate how stupid mortgage providers were to offer such an nonsensical guarantee... again not one in the realms of reality...
Well what happens if a lender offers a fixed rate of 3.5% and the cost of funds exceeds 5%? Irish lenders can offer a rate cap and presumably buy a financial product to offload their risk. With rates forecast to be very low for the future, this should be relatively cheap. Of course, it would have to be priced into the rate which might make it too expensive.
However, such a rate cap would give the borrower comfort that they lender will not exploit them by pushing up the rate to an excessive level.
8) Pre approval for further borrowing. Let's say I get mortgage approval for €300k based on my income and LTV. But I need only €200k. I can draw down the remaining €100k if I need it. Subject to a review of credit status. Clearly if I have been missing payments, then I would not get it.
What you've described isn't a pre-approval - it's a formal approval of E300k - but client only draws E200k - again there will be a capital implication if it were to remain available but undrawn...
That's a much better way of looking at it. Does it happen in practice? If I get mortgage approval in principle for €300k and only draw down €200k, I presume that I can't come back later and draw down the €200k, unless it's a self-build mortgage with different stages of draw down.
8) An interest only mortgage. Repaying capital on mortgages over 60% LTV should be optional.
Sanity check on this one??? Has the country tried this before??? If borrowers can't afford capital repayments they shouldn't be borrowing (and mortgage provider shouldn't be lending the money)
It's not so much a sanity check as, challenge yourself to think about it. Check out this post which shows how it works in Switzerland.
The mortgage system in Switzerland
There is absolutely no good reason why a going concern lender with a performing 60% LTV mortgage and a profitable margin should want any capital repayments. Why would they? So that they would lend them on to a new customer?
9) An indefinite mortgage - there is no reason why a mortgage should be repaid at a particular age. However, the lender would have to have the right to seek repayment after 20 years.
And where will the mortgage provider find the indefinite funds to lend on 'on an indefinite basis'???
It's the same place as they get their funding now. Deposits for the main part and mortgage backed securities.
