Key Post Central Bank continues to mislead SVR mortgage holders about true rates

[Brendan Burgess]

As I have pointed out in this thread, the Central Bank is misleading Irish borrowers and the ECB in claiming that the average rate for new mortgages in Ireland is 3.29%.
Briefing: Irish mortgage rates are almost 2% higher than the Eurozone average!
I first came across this in August, and despite taking this up with the Central Bank, they continue to deliberately mislead people.

They have just published their Quarterly Bulletin which has an a section on how they calculate the rate. I have extracted the relevant section and attached it to this post.

What is so annoying about this is that the section explains the purpose of the Monetary Interest Rate (MIR) statistics is to produce a comparable set of euro interest rates and that these stats are used for "analysing ...the extent and speed of interest rate pass-through between official rates and lending rates"

The ECB would be horrified if they knew that they had reduced the ECB rate to 0.05% , and that Irish lenders were charging 4.5% for mortgages.

Niall Brady reports on it in today's Sunday Times

Bank masks the great mortgage gap

The Central Bank has admitted that the gap between the cost of new mortgages in Ireland and other eurozone countries is much higher than previously reported...

Gavin Doheny, an economist at the Central Bank, said that the distortion caused by cheap trackers would end next year.

This is so frustrating. If a bank regulated by the Central Bank was publishing misleading information like this, the Central Bank would be all over them. But when the Central Bank deliberately publishes misleading information, there is no one for us to complain to.

According to the Quarterly Bulletin

"The current new business series does not distinguish between actual new business and renegotiated contracts. The forthcoming enhancement of the MIR Series (in 2015) will allow this distinction"

Why does the Irish consumer and the ECB have to wait until then?

 

[Brendan Burgess]

I have issued a press statement to the media today.

Brendan Burgess, the founder of askaboutmoney.com, has today called on the Central Bank to come clean on the very high variable mortgage rates charged to Irish borrowers.


The Central Bank continues to deliberately mislead Irish standard variable rate mortgage holders. In their latest Quarterly Bulletin they claim that interest rate for new borrowers is 3.29% whereas the true rate is closer to 4.5%.
They arrive at the 3.29% by including rescheduled and restructured trackers as “new business”.

According to the ECB, the average rate across the Eurozone is 2.63% - so Irish borrowers are paying almost 1.9% more than their Euro area counterparts.


The impact on borrowers is huge
· An Irish borrower with a variable rate mortgage of €200,000 is paying around €3,700 more each year than the average borrower in the Eurozone.
· Many borrowers who are in arrears would not be in arrears if they were paying euro area mortgage rates
· Some borrowers who are losing their homes because they cannot afford their mortgages, would be able to stay in their homes if the rates were reduced
The implications for the banks are huge
· The Irish banks have around €50 billion of variable rate mortgages, and so are making almost €1 billion in extra profits as a result of this rate difference.
· The three state owned banks, AIB, ptsb and EBS control half of the market between them and so are making an additional €500m in profits which they would not otherwise be making.
· The stress tests will be misleading as this artificial boost to profitability will not continue.

The Central Bank should immediately publish the correct information and correct their submission to the ECB Statistics Department.
They should encourage the lenders to reduce their mortgage rates in line with the reduced ECB rates
The government should instruct the directors of AIB, ptsb and EBS to cut their rates in an effort to boost competition.

 

[chrisboy]

I have issued a press statement to the media today.

Brendan Burgess, the founder of askaboutmoney.com, has today called on the Central Bank to come clean on the very high variable mortgage rates charged to Irish borrowers.


The Central Bank continues to deliberately mislead Irish standard variable rate mortgage holders. In their latest Quarterly Bulletin they claim that interest rate for new borrowers is 3.29% whereas the true rate is closer to 4.5%.
They arrive at the 3.29% by including rescheduled and restructured trackers as “new business”.

According to the ECB, the average rate across the Eurozone is 2.63% - so Irish borrowers are paying almost 1.9% more than their Euro area counterparts.


The impact on borrowers is huge
· An Irish borrower with a variable rate mortgage of €200,000 is paying around €3,700 more each year than the average borrower in the Eurozone.
· Many borrowers who are in arrears would not be in arrears if they were paying euro area mortgage rates
· Some borrowers who are losing their homes because they cannot afford their mortgages, would be able to stay in their homes if the rates were reduced
The implications for the banks are huge
· The Irish banks have around €50 billion of variable rate mortgages, and so are making almost €1 billion in extra profits as a result of this rate difference.
· The three state owned banks, AIB, ptsb and EBS control half of the market between them and so are making an additional €500m in profits which they would not otherwise be making.
· The stress tests will be misleading as this artificial boost to profitability will not continue.

The Central Bank should immediately publish the correct information and correct their submission to the ECB Statistics Department.
They should encourage the lenders to reduce their mortgage rates in line with the reduced ECB rates
The government should instruct the directors of AIB, ptsb and EBS to cut their rates in an effort to boost competition.

Fair play Brendan, i for one am delighted that you are taking them to task over this.

 

[Bronte]

What is so annoying about this is that the section explains the purpose of the Monetary Interest Rate (MIR) statistics

The ECB would be horrified if they knew that they had reduced the ECB rate to 0.05% , and that Irish lenders were charging 4.5% for mortgages.

there is no one for us to complain to.

Can you post up Niall Brady's article please (I only have the international edition of the Sunday Times)

Have you figured out why they figures are deliberately incorrect.

Who is gaining by this.

Or is just incompetence.

How about you complaining to the ECB, (don't forget to send it by registered post and maybe cc the CB !)

 

[Brendan Burgess]

OK, at least the Governor is coming clean on it to some extent

[broken link removed]

Meanwhile it is noteworthy that spreads on non-tracker mortgage interest rates have moved higher and higher, not responding positively to the lowering of the ECB policy rate from 1.5 per cent in mid-2011 to 0.05 per cent today (Figure 2). (This is not quite visible from the usual statistical data series on aggregate mortgage lending rates since some tracker rates – mostly on restructured mortgages – are included in the standard definition for that series). Admittedly, despite this widening of spreads on non-tracker mortgages, the banks have not been profitable. Still, it is reasonable to ask whether, having under-priced lending so badly in the early years of the millennium, they could end up over-pricing it now. Ireland is not the only country to have been experiencing widening spreads. In the UK too they have moved up since the crisis and, for mortgages, are about as high as here. Spain and Italy are other large countries where spreads on small loans, including business loans widened appreciably following the crisis, though with some reversal more recently (Figure 3).

In Slide 2, he shows that the SVR is between 4.2% and 4.4% - much higher than the rate published in the MRI stats.

 

[Bronte]

OK, at least the Governor is coming clean on it to some extent


In Slide 2, he shows that the SVR is between 4.2% and 4.4% - much higher than the rate published in the MRI stats.

Maybe he doesn't know about the other report from his staff. Nor that you have been complaining about it.

 

[keepon]

Outrageous. How can our Central Bank get away with such obvious cooking of the books? Does the ECB, which we know played no small part in creating this mess in the first place, not have a regulatory duty here?

And why is Honohan introducing the red herring of spreads on small business loans in Italy and Spain?

 

[Bronte]

And why is Honohan introducing the red herring of spreads on small business loans in Italy and Spain?

How did he do that?

 

[Niall Brady]

From The Sunday Times, October 5

Bank masks the great mortgage gap
Niall Brady Published: 5 October 2014
THE Central Bank has admitted that the gap between the cost of new mortgages in Ireland and other eurozone countries is much higher than previously reported because of inconsistencies in how its statistics are compiled.
The regulator reported last month that the average interest rate on new mortgages was 3.29%, compared with a eurozone average of 2.63%. A similar gap is expected when updated statistics for August are published this week.
The average Irish rate is understated, however, because the Central Bank’s new lending statistics include restructured mortgages, mainly cheap tracker mortgages that were sold during the credit bubble. Almost 48,500 mortgages had been restructured by July for borrowers in arrears.
Disclosure of the inconsistencies, made in the Central Bank’s quarterly bulletin published on Friday, will increase the pressure on mortgage providers to explain why interest rates are so much lower in neighbouring countries than in Ireland, where most first-time buyers pay about 4.5% interest. Gavin Doheny, an economist at the Central Bank, said in the bulletin that the distortion caused by cheap trackers would end next year.
“The current new business series does not distinguish between actual new business and renegotiated contracts,” he said. “The forthcoming enhancement of the mortgage interest rate series will allow this distinction.”
Brendan Burgess of personal finance website Askaboutmoney.com, accused the Central Bank of misleading home owners about the cost of borrowing. “It can’t treat a mortgage taken out 10 years ago as a new loan simply because the borrower decides to look for a term extension,” he said. “It costs people €5,000-€6,000 extra a year to pay a mortgage of €300,000 at an Irish interest rate of 4.5% compared with the eurozone average.”

 

[keepon]

How did he do that?

See the quote in #5 above.

He's talking about mortgage spreads in Ireland, then tries to justify them with reference to rates in a non-Euro jurisdiction, the UK, then comes up with the non sequitur of commercial rates in Spain & Italy.

 

[keepon]

Incidentally, why is the focus here on new mortgages? What about all the existing mortgage holders who are being screwed to the wall -- a much bigger group.

 

[Bronte]

Incidentally, why is the focus here on new mortgages? What about all the existing mortgage holders who are being screwed to the wall -- a much bigger group.

That's actually a very good point. And the CB is also about consumer protection, but current Irish mortgage holders on variable rates are paying nearly double what others are paying in the Eurozone.

Interestingly if the CB succeeds in curbing lending, it will presumably lead to properties not being sold, and it might cause a property crash in our current massively rising market. Also it might mean that those who had some kind of hope of moving, those stuck as families in too small apartments in particular due to negative equity, will have no change and are effectively tied by the CB not acting in the consumer interest by curbing the high mortgage rates, but also preventing those stuck in this situation from moving on.

Be very careful in intervening in markets.

 

[cormacol]

While I think it's important to pick up on the reporting inaccuracies - is it not obvious why rates are so much higher here than elsewhere?

 

[Delboy]

While I think it's important to pick up on the reporting inaccuracies - is it not obvious why rates are so much higher here than elsewhere?

A Bust banks which are still losing money
B No repossessions, even of mortgages may years in arrears

 

[Protocol]

Box B on page 37 of the latest CBI quarterly bulletin provides more details on Mortgage Interest rate data:

[broken link removed]

 

[keepon]

A Bust banks which are still losing money

Not a justification for targeting one section of their business to keep them in the style to which they are accustomed

B No repossessions, even of mortgages may years in arrears

I read somewhere since this thread started - sorry, can't remember but I'll try to find it* - that this factor has been hugely overstated in the banks' special pleadings.

*Maybe even in this thread or on this MB

 

[Brendan Burgess]

Incidentally, why is the focus here on new mortgages? What about all the existing mortgage holders who are being screwed to the wall -- a much bigger group.

Hi keepon

I have made the point that it applies to all mortgages.

If, say KBC, charged 3% to new business, BoI customers paying 4.5% would switch.

So it affects around 300,000 borrowers. I am astonished that they don't protest about this.

Brendan

 

[keepon]

I have made the point that it applies to all mortgages.

If, say KBC, charged 3% to new business, BoI customers paying 4.5% would switch.

So it affects around 300,000 borrowers. I am astonished that they don't protest about this.

Brendan

I appreciate that Brendan, but this is an indirect effect that depends on borrowers' ability to switch and on a presumption of effective competition in a near-monolithic banking system. In the meantime, all those borrowers are being directly overcharged, by any reasonable standard.

I wish I could be astonished that there has been no outcry, but we do seem to be a particularly passive and fatalistic bunch. Perhaps we really do believe that somehow the bankers are our betters, because they have better suits. Why else would we just suck it up?

 

[Delboy]

I appreciate that Brendan, but this is an indirect effect that depends on borrowers' ability to switch and on a presumption of effective competition in a near-monolithic banking system. In the meantime, all those borrowers are being directly overcharged, by any reasonable standard.

I wish I could be astonished that there has been no outcry, but we do seem to be a particularly passive and fatalistic bunch. Perhaps we really do believe that somehow the bankers are our betters, because they have better suits. Why else would we just suck it up?

If BoI, AIB etc decided to increase SVR's to 10% tomorrow, what can anyone do about it?
Yeah, it might entice some outside players over time...but in the short term, everyone would have to suck it up.

 

[Brendan Burgess]

The Governor has admitted that the Central Bank statistics are misleading in [broken link removed]s in the a speech to the UCD Economics Society

Meanwhile it is noteworthy that spreads on non-tracker mortgage interest rates have moved higher and higher, not responding positively to the lowering of the ECB policy rate from 1.5 per cent in mid-2011 to 0.05 per cent today (Figure 2). (This is not quite visible from the usual statistical data series on aggregate mortgage lending rates since some tracker rates – mostly on restructured mortgages – are included in the standard definition for that series).

OK, it's in brackets and much less direct than his usual pronouncements, but at least he is aware of the issue. I wonder if he will direct his statistics department to fix the statistics?