Estimate of the number of borrowers who could actually switch

Sarenco

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Moved from another thread - Brendan

Incidentally, could you indicate your thinking behind the 150,000 figure? I would have estimated that only a fraction of this figure would be genuinely "captive" variable rate borrowers that are not in a position to switch or fix at a lower rate.
 
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Incidentally, could you indicate your thinking behind the 150,000 figure? I would have estimated that only a fraction of this figure would be genuinely "captive" variable rate borrowers that are not in a position to switch or fix at a lower rate.

There are 600,000 mortgage holders
Around 300,000 of these have non-tracker mortgages
I reckon that around 40% of these have LTVs greater than 80% or negative equity. - so that is 120,000
Of the remaining 180,000 around 20% are in arrears, have been in arrears or have been restructured - so that is another - 30,000
Of the remaining 150,000, around 20% have small mortgages where the costs of switching would not be justified - another 30,000
Of the 120,000 remaining - maybe 20,000 have fixed rates?

So that is a total of 200,000 captive customers.

I like to be conservative, so I have reduced that to 150,000 - and you might argue that the 30,000 on small mortgages are not really captive.

Even if I am still overestimating, it's still a huge number of people.

Brendan
 
Thanks.

On the number of "captive customers", according to a Central Bank study published in 2014, 64% of mortgage borrowers had positive equity in their homes in mid-2012. Given the fact that house prices nationally have risen by at least 20% since mid-2012, and mortgages have continued to be paid down over the last three years, I would have thought it reasonable to assume that a large majority of mortgage borrowers (of all types) have at least 20% equity in their homes.

Also, I would suggest that a large majority of those in negative equity (or that only have modest amount of home equity) would have bought between 2002 and 2008 and are therefore far more likely to have trackers.

I really don't know how many borrowers are not in a position to switch borrowers or to fix at more attractive rates but I would have thought that 150,000 borrowers was a significant overestimate. In any event, I certainly agree that we are still talking about a lot of people.
 
I would have thought that 150,000 borrowers was a significant overestimate. In any event, I certainly agree that we are still talking about a lot of people.

That is the Key Point. It's a lot of people. Even if I have over-estimated by 200%, which I don't think I have, it's still 50,000 people.

Brendan
 
Hi Sarenco

I did a bit more digging on this.

The AIB Interim Report for June 2015 gives a lot of detailed and recent information.

For Owner Occupied mortgages, RoI only

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I did a similar exercise for ptsb and they have €4 billion available out of €16 billion.

So 25% seems about right.

The following would bring it down further:
  • Small mortgages where the savings would not cover the costs of switching.
  • Borrowers who no longer meet the Loan to Income requirements
  • Borrowers on fixed rates
  • Restructured loans which are not classed as non-performing
 
Hi Brendan

Do those figures not show that €14.1bn owner-occupier mortgages have an estimated LTV of less than 80%?

Also, I don't think it's safe to assume that LTVs are consistent across product types. I would suggest that a disproportionate number of mortgage accounts with high LTVs were originated between 2002 and 2008, when trackers were widely available.

Fixed rate mortgages represent around 8% of the book so they're fairly material.
 
Actually the above table, calculated those who can switch.

Here is my calculation for those who can't switch.

1) There are 5.3 billion of non performing loans of which 40% are on trackers – so 60% of them are on non-trackers , so they can’t switch - €3 billion

2)Of the performing loans of €23.7 billion, €10.9 b have LTVs in excess of 80% so they can’t switch.

40% of all mortgages are trackers. But a higher proportion of high LTV mortgages are trackers.

So, say 50% of the performing loans are non-trackers with LTVs > 80% €5.5 billion


Summary of those who can't switch:
non-tracker mortgages which are non-performing (LTV not relevant) - €3 billion
non-tracker mortgages which are performing but with an LTV > 80% - €5.5 billion
Small mortgages where the savings would not cover the costs of switching.
Borrowers who no longer meet the Loan to Income requirements
Restructured loans which are not classed as non-performing
Total : c.€10 billion or around 35% of the loan book (higher than I thought)

That is for AIB - if we apply it to the 600,000 mortgage holders out there, then it's about 210,000.

That seems too high. I wonder have I confused myself now?
 
As I pasted in another thread, the Central Bank estimates "at end-March 2015, there were 757,175 private residential mortgage accounts for principal dwellings." So not 600K, 757K, higher by about 25% unless 757K is not correct and 600K is. Did I get it wrong?

As for the calculation, from the data is not knowable the percentage of trackers among those with an LTV > 80%. Could be half, could be less, could be more. There could be say between 40 and 80% of trackers in this category, or therefore 20% to 60% on non-trackers = between 2.2 and 6.5 billion. To adjust for uncertainty, from your total of c.10 billion then deduct 3.3 billion or add 1 billion, between 6.7 and 11 billion, or between 23% and 38%. Of course we do not know if we can extrapolate to other banks, but if we can, then to 757K mortgage holders there are between 174K and 288K those who cannot switch. We also do not know if your additional 1.5 to add to 3 and 5.5 to make c.10 is correct.

If Sarenco is right and there are mostly trackers among those with an LTV > 80%, then it is closer to the lower bound of 174K. So, probably around 200K anyhow.
 
As I pasted in another thread, the Central Bank estimates "at end-March 2015, there were 757,175 private residential mortgage accounts for principal dwellings." So not 600K, 757K, higher by about 25% unless 757K is not correct and 600K is. Did I get it wrong?

Yes, but approximately 46% (by value) of all outstanding mortgages are trackers and 11% are fixed.

My best estimate (and this is very much a ballpark figure) is that there are probably around 75,000 performing SVR mortgage accounts that would benefit from switching mortgage providers but are not in a position to do so due to limited (or negative) home equity/savings or insufficient income.
 
I would not necessarily exclude the fixed ones from this pool as the moment SVRs become "real" upon the expiration of fixed contracts they revert to SVRs probably, or switch. That of course would depend on whether the majority of fixed ones are on short fixes. Many fixed ones are the so-called split so they would also benefit from SVR reduction. So excluding fixed ones, you have 326K SVR mortgage holders who r not on trackers.

From the existing data it is unknowable if there are 75K who cannot switch, or more. Even by your conservative estimates, it means a quarter, 23% (75K out of 326K) cannot switch. I think a quarter is a lot, every fourth is captive. But it could be more who knows.
 
I agree that it is not really possible to give an accurate estimate as to how many variable rate mortgage accounts would benefit from switching but cannot do so for the reasons already outlined.

For example, I suspect the vast majority of borrowers with variable rate home loans written by AIB/EBS/Haven would not benefit from switching but I obviously can't know that for certain.
 
As I pasted in another thread, the Central Bank estimates "at end-March 2015, there were 757,175 private residential mortgage accounts for principal dwellings." So not 600K, 757K, higher by about 25% unless 757K is not correct and 600K is. Did I get it wrong?

They are mortgage accounts. There are around 1.25 accounts per mortgage holder due to remortgages. So 757k /1.25 = 600k
 
My best estimate (and this is very much a ballpark figure) is that there are probably around 75,000 performing SVR mortgage accounts that would benefit from switching mortgage providers but are not in a position to do so due to limited (or negative) home equity/savings or insufficient income.

Can you show how you arrive at the figure.

My figure is a total - which also includes those in arrears.
 
For example, I suspect the vast majority of borrowers with variable rate home loans written by AIB/EBS/Haven would not benefit from switching but I obviously can't know that for certain.

These borrowers are tied in to AIB. If a new lender enters the market and charges fair rates, they will not be able to move. I agree that there is no point in them moving now to another lender.
 
I am trying to make the point that the Central Bank's report that competition will solve the problem is nonsense. I want to show how many people will not benefit from competition because they can't switch.

Those on fixed rates can't switch.
Even when the term is up, many will not be able to switch for other reasons.

Brendan
 
Can you show how you arrive at the figure.

It's really no more than an educated guess. We simply don't have sufficient data to accurately estimate the total number of borrowers with performing variable rate home loans that would benefit financially from switching but are not in a position to do so due to a lack of home equity/savings or insufficient income.
 
These borrowers are tied in to AIB. If a new lender enters the market and charges fair rates, they will not be able to move. I agree that there is no point in them moving now to another lender.

That is not the case for all these borrowers. Nearly half of all AIB home loan borrowers have at an LTV of less than 80% and I would suggest that a large majority of borrowers with more modest (or negative) equity have trackers and would not benefit from switching.
 
I am trying to make the point that the Central Bank's report that competition will solve the problem is nonsense. I want to show how many people will not benefit from competition because they can't switch.

It is interesting to see the significant increase in switching activity in the latest IBF figures. This is perhaps unsurprising as some borrowers can reduce the interest rate they are being charged by as much as 25%. Of course we would all love to see lower rates but it is encouraging to see competition re-emerging in the mortgage market.

I agree that there are some borrowers that cannot currently benefit from this competition and I am of the view that they are deserving of a degree of legal protection. In time these borrowers should build sufficient equity to put themselves in a position to switch but in the meantime I believe we should put a mechanism in place to ensure they are not exploited.
 
I know it is anecdotal but 3 out of 4 people on SVR I know cannot switch, all bought during the boom. One is in NE but probably good for new 3.5 LTI rules, and two do not have 80% LTV and their LTI is close to x4 at the same time. One more does not have to switch, with AIB already. I cannot extrapolate, I know, but it is indicative.

Ultimately, we do not know how many people cannot switch. The banks may have estimates of LTV of their loans but I bet they do not have the info on LTI of their customers, people go on maternity leave, income changes all the time. But I think one can safely assume that the majority of people who can switch are those who bought after 2008 and are likely to have above 80% LTV unless their LTI has changed since. Even LTV is a moving target, if property prices go down, more people cannot switch. But I would have thought, all things being equal, the majority of those on SVR and fixed ones who bought prior to 2009 cannot switch. I do not know if one can pull these figures from someplace.
 
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I also find it ironic that people who are deemed to have sufficient income to service high mortgage costs by one bank may be deemed to have insufficient income to switch to another bank that would ultimately reduce their mortgage costs, resulting in more disposable income. Even though their income has not changed since they took mortgages. I see the logic of LTI as applied to "new" mortgages. But switchers, if their credit history is good, have already shown they can service it over their 3.5 LTI, why not let them switch so they pay less?

At the end of the day only those who are already OK, i.e., bought at regular prices long after the boom, can probably switch. And people who bought at boom prices and are unlucky not to have trackers for whatever reason, are both not OK and cannot switch. And if property prices decline in Dublin, then it all is for a long long time.
 
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