Changing Constitutional property rights in return for lower Mortgage rates

[Dermot]

What would the likely reaction be if a proposal were made to change property rights in order to make repossession very simple, cheap and devoid of legal challenge in return for a guaranteed incentive as follows.

Where a person taking out a mortgage would sign up to an agreement which would incorporate the above having taken their own legal advice and in return be able to avail of the following.

The banks would provide the mortgage at max 2% above ECB rates or their cost of funding whichever would be the lowest for the term of the mortgage and would be portable.

A 20 year mortgage at a fixed rate of max 3% above ECB rate at time of fixing and would be portable.
A 30 year mortgage at a fixed rate of max3.5% above ECB rate at time of fixing and would be portable

The above rates would be available to existing and new mortgage holders with either a 15% deposit or greater than a 20% equity in their own home.

The rates proposed above would not be without risk

This may be simple type thinking but just throwing out the idea where others might put up a more rational different approach in the debate.

I am just throwing out the idea as I think that the only way of getting real competition into the mortgage market is making repossession easier etc and the only way of getting outside banks in is to change our repossession laws drastically.

How many current SVR holders would go for the proposal or a variance on it.

You do not have to have a big branch network to have an impact on the market.

 

[Jim2007]

I am just throwing out the idea as I think that the only way of getting real competition into the mortgage market is making repossession easier etc and the only way of getting outside banks in is to change our repossession laws drastically.

Where is the evidence that the reposession laws are reason that foreign banks do not get involved in the Irish mortgage industry? You need to keep in mind that these banks and more precisely their shareholders consider the mortgage business to be high risk and something not to be undertaken outside their home country, where they have some degree of competence, unless they can generate very high returns from the activity.

 

[Brendan Burgess]

Hi Dermot

Irish people are happy to sign agreements and then renege on them later. The courts won't enforce them.

Check out
The mortgage system in Denmark

· Time from first missed payment to repossession 6 months - There is a special enforcement court to make sure it happens.

As a result, mortgage bonds are treated the same as government bonds. The current mortgage rate is -0.2%. That is correct. Investors pay for the borrowers to borrow money from them.

It's a pity that Danske Bank doesn't introduce that model to Ireland instead of charging its Irish customers 4.95%.

Brendan

 

[Dermot]

Where is the evidence that the reposession laws are reason that foreign banks do not get involved in the Irish mortgage industry? You need to keep in mind that these banks and more precisely their shareholders consider the mortgage business to be high risk and something not to be undertaken outside their home country, where they have some degree of competence, unless they can generate very high returns from the activity.

There maybe reasons why the evidence is not being flagged / published or talked about but that does not say that it does not exist. There are lots of instances where evidence was not published but that does not mean that it was not there. It is obvious why banks here would not be currently pushing for a major change in repossession laws as it would not be currently in their interest to have a new competitor coming in without baggage from the past and benefiting from a system similar to Denmark.
Having just read a synopsis of the Danish system by Brendan why is there not a clamour for it or is it because that system is being kept hidden away from the Irish Public.
Very few people in Ireland want to lead on the repossession discussion. We are still living in the evil british landlord era to an extent. We as a country are paying a price for this thinking. It is long past the time that we should have moved away from this baloney.
Every impediment that can be removed from the system to make mortgages cheaper should be examined. Equally banks should be rigorous in examining the ability of mortgage applicants to repay their mortgages. Banks should never again be allowed to go below 15% deposits and that this deposit should be based on evidence of actual savings by the applicants.
Banks would need to be tied in legally into any new system where there was certainty on rates.

On setting up a special enforcement courts system to deal with repossession weset up the Special Criminal Court & a fast tracking system in the Commercial Court. It can be done if we want to.

 

[Jim2007]

Having just read a synopsis of the Danish system by Brendan why is there not a clamour for it or is it because that system is being kept hidden away from the Irish Public.

There is nothing special about the Danish system, it is just a securitisation mechanism, which by the way has contributed to Denmark's private debt levels reaching a world record of 322% of disposable income! This is another disaster waiting to happen!

But putting that aside for a minute, these Danish bonds are triple AAA grade investment bonds so they have a ready marked. Who would you expect to buy Irish bonds and what rate????

 

[Dermot]

But putting that aside for a minute, these Danish bonds are triple AAA grade investment bonds so they have a ready marked. Who would you expect to buy Irish bonds and what rate????

As I have said earlier remove the impediments to repossessing a property any any other related matters. Maybe up the deposit to 20%. There were very few interested in buying Irish Government Bonds at nearly any price not to many years ago. The Government bonds are now over subscribed at little or no yield. If proper and real structures were put in place you might be surprised who would buy them and how low the yield might be.

What are the advantages of the current "repossession" system. Taking 6 years with no repayments to repossess either a BTL or a home. I am at all times taking the line that banks would have to enforce these repossessions and remove the impediments for doing so. People living in houses for years payment free and BTL owners collecting rent and pocketing it for years and not paying property tax/doing minimal repairs and registering for nothing. The banks even where they do repossess taking up to 2 years to complete a sale even where title is good. Legal charges/receiver charges/Auctioneers and highly paid staff in banks overseeing all of this. It is all crazy and needs to be streamlined.

 

[Jim2007]

As I have said earlier remove the impediments to repossessing a property any any other related matters. Maybe up the deposit to 20%. There were very few interested in buying Irish Government Bonds at nearly any price not to many years ago. The Government bonds are now over subscribed at little or no yield. If proper and real structures were put in place you might be surprised who would buy them and how low the yield might be.

Well a government bond and a MBS are two very different things, the risk on a MBS is always perceived as being much higher, at least out side of Ireland. And given that most European portfolio managers try to keep their property exposure below 6% or 7%, the market is small to begin with, so the only way to drum up an interest in the property bonds of a small open economy is to over a very high rate of return.

 

[Dermot]

We can continue to debate about the possibility of raising finance at low interest rates until the cows come home but we will never know if the impediments are not removed such as swift cheap repossessions. The current situation is not working for those who are paying their high variable mortgage.
Most if not all the countries who have lower rate mortgages have a faster and less cumbersome repossession mechanism that we have so there must be some reason behind this.

"The number of BTL accounts that were in arrears of more than 180 days was 28,083 at end-June 2014, reflecting a quarter-on-quarter increase of 3.4 per cent. However, the most pronounced increase of 9.4 per cent was seen among accounts in arrears over 720 days. These now total 14,536 accounts or 10 per cent of the total stock of BTL mortgage accounts and 73 per cent of outstanding arrears. The outstanding balance on these accounts was €4.5 billion at end-June, equivalent to 16 per cent of the total outstanding balance on all BTL mortgage accounts."

"There were 568 BTL properties in the banks’ possession at the beginning of Q2 2014. A total of 97 properties were taken into possession by lenders during the quarter, of which 23 were repossessed on foot of a Court Order, while the remaining 74 were voluntarily surrendered or abandoned. During the quarter 59 properties were disposed of. A further 5 properties in possession that were reported previously as PDH properties were reclassified as BTLs. As a result, lenders were in possession of 611 BTL properties at end-June 2014."

The last two paragraphs are about BTL's which would normally be a less emotive area for repossession and yet nothing much is happening. In fact over 3 times as many were either abandoned or handed back than were repossessed on foot of a court order.

Nothing very significant given the scale of the problem has happened in the last 10 months either.

In the meantime SVR mortgage holders are being hung out to dry.

I would add that I have no SVR mortgages but that does not mean I cannot see what is happening is wrong.