There's been a lot of excitement over the last week about a new entrant to the Irish mortgage market, and speculation about what rates they might offer. I've seen posters here, and elsewhere, pointing out rates available in Germany and Spain for example, and talk about those rates being made available here.If the average rate across the eurozone is 1.8%, then they might see the Irish market as attractive but at the current rates.
The Central Bank decide whether banks can use standardised approach or Internal Ratings. In Ireland, with the exception of EBS, all the banks use internal ratings. I'm not close to the details, so I don't know the exact mechanics of this, other than it relies heavily on past loss / default rates for the bank.Who sets the rate at 42.5%?
No, as their loss rates would be lower.Let's say that EBS had decided back in 2003 that it was going to stick rigidly to 80% LTV and 3.5 times income, and, as a result had very, very low mortgage defaults. Would it still have the same capital adequacy requirements as Ulster Bank today?
Yes, for their Irish lending. I think the lowest risk weight is about 35%.If a very conservative lender from Germany set up in Ireland and limited their loans to 50% LTV and 3.5 times income, would they too be caught by the 40% risk weighting.
There used to be a bigger gap, but it's shrunk. Which is why banks stopped differentiating between LTV bands.This is the point that I don't understand. 90% LTV lending should be more expensive in Ireland than 90% mortgages in Sweden because they are a lot riskier.
That should be the case, but the calculations factor in past loss experience and default rates. There has been much more default on 50% LTV mortgages here vs Sweden.But 50% LTV mortgages in Ireland are no riskier than 50% LTV mortgages in Sweden and show they should have the same risk weighting and the same mortgage rate.
There has been much more default on 50% LTV mortgages here vs Sweden.
Possibly the sample size of mortgages that met those criteria post 2003 isn't big enough to be used as an argument with external rating agencies? Or maybe the inability to repossess the collateral weighs heavily?close to zero losses on mortgages which were handed out at 80% LTV and 3.5 times Loan to Income.
Jon the club!(Ps not an expert
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?