CB shows mortgage rates are higher and deposit rates are lower than Eurozone average

Brendan Burgess

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The Central Bank has just published its rates for June

[broken link removed]

They continue to publish new business rates including trackers. They mention, but don't highlight, the true rate excluding trackers.

Excluding renegotiations, new mortgage agreements ...The weighted average interest rate on all pure new mortgage agreements, once renegotiations are excluded, declined 30 basis points over this period and stood at 3.56 per cent in June.


I hadn't noted a comment on deposit rates before. But now it's official

You suckers are paying more for your mortgages and getting less on your deposits than the rest of the Eurozone.

Interest rates on household term deposits remained subdued in June 2016, at 0.13 per cent (Chart 5). This represented a 13 basis point decline over the year for depositors. While equivalent euro area rates had a larger decline of 21 basis points over the same period, they remain somewhat higher at 0.58 per cent.



So the margin in Ireland is almost three times the margin in the Eurozone.

Having said that, I am a bit surprised that the deposit rate is as high as 0.58% in the rest of the Eurozone.
 

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Hi Brendan, that's some good work... just a note, you're one of the suckers too, no?
I'm squeezing 2.15% (through regular saver accounts) out of the banks for my deposits and I'll continue to recycle funds at the highest rates available, thanks to this website!
 


Brendan

Your chart exaggerates the position somewhat as your "true" new business mortgage rate for Ireland excludes renegotiations whereas your euro area average rate does not - the comparable Irish figure is actually 3.22%.

In any event, there is no doubt whatsoever that the loan-to-deposit spread in Ireland is shockingly high compared to the euro area average (309bps v 123bps at end-June 2016).

The one crumb of comfort is that this spread is continuing to narrow (it was 379bps at end-April 2015), both in absolute terms and relative to the euro area average. The pace is frustratingly slow but at least it's moving in the right direction.
 
Sarenco said:
Your chart exaggerates the position somewhat as your "true" new business mortgage rate for Ireland excludes renegotiations whereas your euro area average rate does not - the comparable Irish figure is actually 3.22%.
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We have discussed this before, many times. The Central Bank is distorting the figures, not I. The rate for you if you go into a bank today to take out a mortgage in Ireland is 3.56%. In another Eurozone country it's 1.81%. They do not have the issue we have , whereby they bring the rate down by including trackers which were issued in 2008 as new business.

But I will check to see if the ECB publishes a comparable figure for new business excluding renegotiations.

Brendan
 
Brendan Burgess said:
We have discussed this before, many times.
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We have indeed. And you continue to insist on comparing apples-to-oranges for some bizarre reason. The comparable rates, calculated according to a consistent methodology, are stark enough.

Brendan Burgess said:
The Central Bank is distorting the figures
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How so?

I might agree with you regarding the emphasis placed on particular rates in the Central Bank press releases but that's not the same thing as saying that they are "distorting the figures".

Brendan Burgess said:
The rate for you if you go into a bank today to take out a mortgage in Ireland is 3.56%.
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That particular average variable rate was actually 3.6% at the end of June, per the Central Bank statistics.

Brendan Burgess said:
But I will check to see if the ECB publishes a comparable figure for new business excluding renegotiations.
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They don't.
 


Table B3.1 has a rate of 3.6% for "standard or LTV variable".

The press release and the statistical release have 3.56%
Excluding renegotiations, new mortgage agreements amounted to €417 million in the month, bringing total new mortgage agreements, over the past twelve months, to €4.5 billion. The weighted average interest rate on all pure new mortgage agreements, once renegotiations are excluded, declined 30 basis points over this period and stood at 3.56 per cent in June.

I will use the lower figure, in case I am accused of exaggerating.

Brendan
 

I don't know why you keep insisting on this?

The only thing which matters is what rate you will get if you take out a mortgage today in Ireland and what rate your eurozone cousin will get.

The rate your eurozone cousin will get is 1.81%. This is the actual rate.

Renegotiations in the rest of the eurozone are for existing borrowers, who twig that they are paying too much, and instead of switching, their lender reduces the rate for them to the rate they are offering new business. If I recall correctly, if they renegotiate it at less than market rates, they must exclude it from new business.

In the Irish context, a "renegotiation" includes the many tracker mortgages who change the term of their mortgage, who have their interest capitalised, or who get a split mortgage, even though they are not charged new business rates. They keep their cheap tracker rate.

So it is absolutely a fair comparison. 1.81% is what your cousin is paying - 3.6% is what you will be paying.

Brendan
 
Here is the relevant bit from the Handbook.


and



The Central Bank should not be including trackers in these figures. And the ECB should not be giving them their approval to do so.

Brendan
 
Can't agree with that Brendan.

The focus of your posts are consumer orientated - i.e. how bad the consumer is getting it.

However, if you get into repayment difficulty or change your terms & conditions the Banks are being stopped from taking the tracker off you. That's a positive consumer protection. You can't exclude them from the figures.
 
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Hi Andy

You are missing the point.

Someone who took out a tracker in 2008 should not be considered a new customer and so they should not be included in the figures.

Brendan
 
Brendan Burgess said:
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The rate your eurozone cousin will get is 1.81%. This is the actual rate.
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The 1.81% figure includes renegotiated floating rate loans - the vast, vast majority of which are trackers. It does not represent the median floating rate available to first time borrowers.

Brendan Burgess said:
I will use the lower figure, in case I am accused of exaggerating.
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These two average figures represent different things - they are not interchangeable.
 
Brendan Burgess said:
You are missing the point.
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No, it's clear that Andy understands what is reflected in the figure.

As a matter of curiosity, if borrowers have their trackers reinstated as a result of the current review process would you exclude these loans? What about new tracker loans taken out under a tracker mover offering?

Again, this particular figure is not intended to represent the average rate available to first time borrowers. That figure is separately published by the Central Bank but there is no comparable euro area figure.
 
Sarenco said:
The 1.81% figure includes renegotiated floating rate loans - the vast, vast majority of which are trackers. It does not represent the median floating rate available to first time borrowers.
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Hi Sarenco

Let's make sure that people do not get misled by your posts. So what if the vast majority of loans issued by eurozone banks are trackers? They are new variable rate loans. It makes the comparison worse and not better. Not only are the eurozone customers getting cheaper mortgages, their margins are guaranteed to remain constant.

They absolutely do represent the average or mean rate available to new borrowers. ( Not median, and not first time - I don't know why you refer to either of those?)

The 1.81% is the average rate a new customer pays for the mortgage. This figure includes cases where existing customers renegotiate the rate at the market rate. If they renegotiate it below the market rate, it's not included.

So it's absolutely comparable.

The Irish "includes negotiations" rates includes tracker rates as low as ECB +0.5% which should not be included.

Brendan
 
Sarenco said:
As a matter of curiosity, if borrowers have their trackers reinstated as a result of the current review process would you exclude these loans? What about new tracker loans taken out under a tracker mover offering?
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The ECB rules are very clear in spirit, even if their drafting allowed the Irish Central Bank to include cheap trackers as new business.

Reinstated trackers would not be new business and should not be included. The CB will probably try to include them.

Tracker movers should not be included either as they would usually be below the market rate. The ECB rules did not anticipate the very Irish solutions to problems.

Brendan
 
Sarenco said:
Again, this particular figure is not intended to represent the average rate available to first time borrowers. That figure is separately published by the Central Bank but there is no comparable euro area figure.
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The rates are for new business, not first time borrowers.

They include existing customers who renegotiate their rates at market rates. So the rate still reflects the new customer rate.

Brendan

Here is the specific definition:


20. New business is defined as any new agreement between the household or non-financial corporation and the reporting agent. New agreements comprise:

— all financial contracts, that specify for the first time the interest rate of the deposit or loan, and

— all renegotiations of existing deposit and loan contracts as defined in paragraph

21. Renegotiation refers to the active involvement of the household or non-financial corporation in adjusting the terms
and conditions of an existing deposit or loan contract, including the interest rate. Thus, extensions and other
adjustments of the terms and conditions that are carried out automatically, i.e. without any active involvement of
the household or non-financial corporation, are not renegotiations.

22. For the separate reporting of new business volumes of renegotiated loans to households and non-financial corporations in MFI interest rate statistics, renegotiation refers to new business loans, other than credit card debt and
revolving loans and overdrafts, already on the balance sheet of the reporting agent at the end of the month preceding
the reference month.

23. Loans for debt restructuring are not per se excluded from renegotiated loans. However, if the restructuring involves a renegotiation of the interest rate, and as a result, the loan is granted at a rate below market conditions as described in
paragraph 28, it should not be included in renegotiated loans nor new business.
 
It's clear to me that clause 23. should result in the trackers which were granted over 6 years ago being excluded, but the CB includes them and the ECB says that they are right to do so. It's outrageous really.

Brendan
 
Brendan Burgess said:
They absolutely do represent the average or mean rate available to new borrowers.
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Sorry Brendan but that is simply not correct.

The MIR framework is designed to capture interest rates applicable to all ‘agreed contracts’ between banks and borrowers. This definition includes contracts which may not translate into actual new lending, as well as renegotiations of existing contracts.

It does not reflect average rates available to new borrowers. 1.81% is not the euro area average rate a new borrower pays for a mortgage.

So, for example, an Italian borrower with a tracker mortgage for a number of years agrees a new rate with his existing lender, or a new lender, perhaps because he now has a lower LTV or a longer credit history. That new agreement is reflected in the MIR figures for the relevant reporting period even though in this example it is a loan agreement entered into by an existing borrower.

In an Irish context, the following renegotiated arrangements have a material impact on the Irish figure for the relevant reporting period as calculated in accordance with the MIR framework:-
  • Any home loan that is fixed for one year to escape a high SVR (one-year fixed rates are deemed to be floating rates for the purposes of the MIR statistics).
  • Any new home loan that is advanced at a (low) tracker rate pursuant to a "tracker mover" offering.

  • Any home loan that is switched to a low LTV based variable rate from a higher LTV variable rate or SVR.

  • Any home loan that is renegotiated at a floating rate that differs from rates typically advertised by a bank.

  • Any home loan that rolls onto a (low) tracker on expiry of a fixed-term loan.
‘Bad loans’ and loans for debt restructuring ‘below market conditions’ are excluded from MIR data. The interest rate agreed for a loan for debt restructuring that is not the result of the general demand and supply conditions in the loan market at the time of the agreement, but rather what the indebted customer is able to pay. Hence, interest rates on loans for debt restructuring at rates below market conditions are, like other bad loans, not captured in the MIR data.

There is no doubt that the volume of renegotiations present in the aggregated MIR series for Ireland is more pronounced than is the case for the euro area as a whole. Over the twelve months to December 2015, renegotiations averaged 61 per cent of all new loans to households for house purchase in Ireland. In contrast, the proportion of renegotiated loans in the euro area averaged just 36 per cent, over the same period. A high volume of renegotiations obviously has the effect of lowering the overall interest rate as they indicate a movement to more favourable terms.

The Central Bank has commented on the data as follows:-

"While some renegotiations, particularly in earlier years, may reflect repayment difficulties on behalf of the borrower, this does not appear to be true for the period December 2014 – December 2015. Over this period, renegotiations appear to largely reflect normal market activity, such as mortgage switching or moving from a variable to fixed interest rate contract."

You may well disagree with the methodology of the MIR framework but that doesn't mean you can simply compare rates that have been calculated using different methodologies and that demonstrates different things.

You can't simply "pick and mix" between the different rates to suit your agenda and it is frustrating that you continue to insist on doing so – both on here and in the national media.
 

But so what? The Italian borrower is not getting a rate at below market rates? Ulster Bank is the only bank which allows existing borrowers whose LTV falls into a new category to avail of the lower LTV rate. I have no problem with that being treated as new business because it's at new business rates.


Interesting about the fixed rates. So as BoI has fixed rates lower than its variable rates, then that too is depressing the true figure.

The tracker movers should not be included. They are at below market rates.

Agree with item 3 as it's at market rate.

Item 4 might happen, but I have never heard of it. It was the first excuse the CB gave me two years ago to explain the difference.

Item 5 should not be included as they are at below market rates and are not new business.


The intent is quite clear. They should not be including any rates "below market conditions" . They make a joke of the Irish data.


Very interesting data which I was not aware of. Where does it come from? Do you know how many of the 36% in the Eurozone were New business renegotiated at rates lower than the market rate for new business?

But you know that this explanation is absolute nonsense. The rates they quote for new business are well below the rates which the lenders are doing new business at? You do know that, don't you? I am a bit concerned that you are reading the rule book and the stuff published by the Central Bank and paying no attention whatsoever to what is happening in the market.


I am comparing like with like. The Central Bank is deliberately trying to understate the gap between the rates charged on new business in Ireland and new business in the rest of the Eurozone. I am surprised that you can't see that.
 

Progress at last! So you do now at least accept that the MIR data does not reflect average rates available to new borrowers?

Neither you nor the Central Bank gets to decide as to what should or should not be included in the MIR statistics. These statistics are complied in accordance with detailed ECB Regulations - they are what they are.

Brendan Burgess said:
Interesting about the fixed rates. So as BoI has fixed rates lower than its variable rates, then that too is depressing the true figure.
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One-year fixed rates form part of the floating rate data. You could just as easily make the point that low LTV rates and "loyalty" rates depress the "true" figure - it would be an equally meaningless comment.

Brendan Burgess said:
Where does it come from?
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A Central Bank explanatory note on the MIR statistics that I have referred you to on more than one occasion.

Brendan Burgess said:
The rates they quote for new business are well below the rates which the lenders are doing new business at?
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Again, the MIR framework is designed to capture interest rates applicable to all ‘agreed contracts’ between banks and borrowers. The MIR framework is not designed to reflect the average rates that banks quote for "new business".

That data is separately published by the Central Bank but there is no comparable euro area data.

Brendan Burgess said:
I am comparing like with like.
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No Brendan, you're not.

The 1.81% euro area figure includes renegotiations; the 3.56% Irish figure excludes renegotiations. Apples to oranges.

The only comparable average figures include renegotiations - 3.22% for Ireland; 1.81% for the euro area.

Yes, the impact of renegotiations is greater in Ireland than it is for the euro area as a whole for the reasons already stated. That doesn't change the fact that these are the only comparable figures that have been prepared on the same basis, in accordance with the same methodology.

I am starting to get concerned that you cannot see this very basic point.
 
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