The stockbrokers do not like it.
This from Goodbody this morning:
Banks Mortgage rates revisited in Oireachtas hearing in coming days
Press reports this morning (Irish Independent) indicate that Michael Noonan, the Minister for
Finance, is due before the Oireachtas Finance & Public Expenditure Committee tomorrow as
part of its pre-legislative scrutiny of Fianna Fail’s Central Bank (Variable Rate Mortgages) Bill
2016. The hearing is likely to rekindle media commentary around the issue of variable
mortgage rates in the days ahead, whilst the market is also likely to be interested in any
clarity in how the bank levy gets reconfigured in tomorrow’s Finance Bill 2017. Mr Noonan
has challenged the mortgage bill’s constitutionality in the past.
To recap, back in Q2, the main opposition party tabled a bill to give the Central Bank powers
to determine variable mortgage interest rates. However, the Central Bank indicated it did not
want the powers, a point reinforced by the ECB which will also have to be consulted should
the bill proceed further. Whilst the bill itself allows for the highest rate in the market to be
one-third above the average rate, its publication in Q2 raised concerns of parliamentary
interference in the market.
We acknowledge that variable rates in Ireland are amongst the highest in Europe,
but so also are mortgage risk weights, a key input for pricing by the banks. Irish
mortgage risk weights (under IRB) range from 27-43% for the main domestic
banks. This compares to c.15% in the UK, c.10% in Scandinavia and c.20% in
Spain. Also, collateral access for the banks in repossession typically takes longer
than in other jurisdictions and Irish term funding costs are higher (lower ratings).
As such, rates in Ireland should be structurally higher than peers. All the same,
there is likely to be further media commentary on this issue in the coming days.
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