High mortgage rates caused by low levels of repossessions

[gnf_ireland]

Quite the difference versus UK:
http://www.irishtimes.com/business/...reaks-uk-records-with-0-99-mortgage-1.2693243

Ok, but to compare like with like
"The deal is available on loans of up to £500,000 and allows annual overpayments of up to 10 per cent a year. However it carries a relatively high fee of £1,499 to arrange."

This is the direct opposite to the BoI/PTSB scenario of cashback on the mortgage.

I genuinely wonder if there is a real market for arrangement fees in the Irish market, and whether its realistic to pay an arrangement fee on a variable mortgage which is not benchmarked on anything. There is nothing stopping the bank from doubling the rate the next day

Now that said, a 5 year plus low fixed term rate, with an arrangement fee, would probably make a relatively amount of sense to a lot of people.
I am also glad to see ability to overpay coming into the fixed product set - which BoI seem to be offering here also

 

[Sarenco]

@Sarenco this is where I (and I assume lots of others) get lost.

You're definitely not alone in that regard!

I think the important thing to bear in mind is that the MIR statistics are designed to inform the ECB's monetary policy (broadly, the impact that their policy rate decisions are having on money supply in the economy) - they are not intended to represent a "best buys" comparison between the rates that are available to new customers across the Eurozone.

So, the definition as to what constitutes "new business" for this purpose is broader than the range of deals that are available to a prospective new borrower that has never has a mortgage before - it includes renegotiated deals. Of particular significance in an Irish context, it includes tracker "mover" rates (that obviously aren't available to a borrower that doesn't already have a tracker mortgage).

@Sarenco
I would actually like to see the rates for NEW BUSINESS loans, freely available on the market, reported to show the real figure for the ordinary person looking at the data - rather than the industry insiders who know how to 'read' it

To be fair, the Central Bank has published average new variable/LTV rates on a quarterly basis since December 2014 - the average rate for PDH loans at the end of March was 3.64%. Unfortunately, there is no comparable data available for other Eurozone countries.

The basis upon which the various statistics are compiled is described in some detail in this note:-

[broken link removed]

 

[Brendan Burgess]

Quite the difference versus UK:
http://www.irishtimes.com/business/...reaks-uk-records-with-0-99-mortgage-1.2693243

HSBC breaks UK records with 0.99% mortgage
Move highlights differential in mortgage rates between Ireland and rest of Europe

Given the Irish experience of tracker mortgages, I think that the following is likely to give you much better long-term value. Trackers might not be around when the 2 year fixed rate period is up or you might not be able to switch lenders and you get stuck on their SVR.

If your LTV is 60%, and you can pay a booking fee of £999 , you will get a rate of 1.99%

This would be great value for someone borrowing £100,000 +

The higher your loan, the less relevant the booking fee, so the closer 1.99% is to the true rate.

Brendan

 

[gnf_ireland]

they are not intended to represent a "best buys" comparison between the rates that are available to new customers across the Eurozone.

Agree, and this is why its always dangerous to use data which was not meant for the purpose it was produced for. However, it has not stopped lots of parties quoting the gap between Irish and European rates, when in fact it is not representative of the 'reality' today

This is exactly the issue that people have called out with the ERSI report - they are potentially mis-using a data set to make a point. It reminds me of my attempts to make my thesis data support the argument I was making

 

[gnf_ireland]

The higher your loan, the less relevant the booking fee,

Agree, but this would be a big change for the market, and given the discussions I have had around BoI in particular, I am not sure its one we are ready for. Not to say it would not work, but I remain to be convinced.

Would I personally pay an arrangement fee of 1k/1.5k for a 1.9% ECB tracker - yes absolutely. It definitely makes financial sense for me to do that

Would I personally pay an arrangement fee of 1k/1.5k for a SVR rate not tracked against anything - unlikely, as i would not be able to assess the 12/24 month benefits of it and the SVR rate could rise in the morning.

To pay an arrangement fee in Ireland, where standard practice is none is charged, there has to be some 'level of certainty' that the rate will be lower over a few years to ensure payback of the arrangement fee. Otherwise, why would someone consider it? This is no difference to switching to a bank which does not offer legal support versus one that does.

 

[Sarenco]

However, it has not stopped lots of parties quoting the gap between Irish and European rates, when in fact it is not representative of the 'reality' today

Yes, but the MIR data is the only comparable data we have. It is surely far more invidious to use data that has been prepared on one basis to create a false comparison with data that has been compiled on a completely different basis - comparing apples to oranges.

This is exactly the issue that people have called out with the ERSI report - they are potentially mis-using a data set to make a point.

My issue with the ESRI report is that they didn't accurately reflect the available data in their report - not their choice of data set. MIR statistics are undoubtedly an incomplete way of comparing rates across Eurozone countries but it's the only comparable data we have available to us. We should be entitled to expect the ESRI to accurately reflect publicly available data in their pronouncements.

 

[Sarenco]

Would I personally pay an arrangement fee of 1k/1.5k for a 1.9% ECB tracker - yes absolutely. It definitely makes financial sense for me to do that

To be frank, lenders are not interested in offering products that make financial sense for a particular cohort of borrowers - they (like all businesses) are interested in generating the maximum amount of profitable business.

How much business would a mortgage lender generate in Ireland if it offered lower rate mortgages in return for an arrangement fee of up to 1% of the sum borrowed (a common arrangement in other Eurozone countries)?

 

[gnf_ireland]

To be frank, lenders are not interested in offering products that make financial sense for a particular cohort of borrowers - they (like all businesses) are interested in generating the maximum amount of profitable business.

Of course their main interest is to maximise their profits. But surely the best way to do that is to invest in acquiring a customer, and then invest in ormaintaining that customer over time not just for one service, but cross sell other services to them.

One of the biggest issues I have with the Irish mortgage market is the lack of choice in the product sets available. There is currently a choice between a variable rate pegged to thin air, and a fixed rate for up to ~5 years.

I would like to see real choice come into the market - a variable rate pegged to something (even the average outstanding mortgage rates), the option of paying an upfront arrangement fee for a lower rate, or a long-term/lifetime fixed rate. Other things that would be nice to see is the facility to overpay, followed by payment holidays up to the over payment point.

However, one thing that the last while has thought me is Irish mortgage customers, in general, are only interested in how much can I borrow today, and sure the rest will work itself out. Maybe this is a result of the behaviour of the banks and politicians over the last while. Who knows to be honest at this stage

 

[Sarenco]

But surely the best way to do that is to invest in acquiring a customer, and then invest in ormaintaining that customer over time not just for one service, but cross sell other services to them.

I think that was the logic that gave rise to the low margin tracker phenomenon.

I would like to see real choice come into the market - a variable rate pegged to something (even the average outstanding mortgage rates), the option of paying an upfront arrangement fee for a lower rate, or a long-term/lifetime fixed rate.

I think it would be fantastic if we had a greater range of mortgage products available to us but crude cash back offers are apparently what attracts business at the moment.

I agree that Irish borrowers seem to be intent on borrowing the maximum amount possible (rather than focusing on the best long term deal) and the cash back offers feed into this market preference. It's hard to blame borrowers for trying to max out their borrowing capacity, on any terms, when defaulting on a mortgage has minimal apparent consequences.

 

[Gerry Canning]

Sarenco,

I do not have the ability to trundle through stats, you appear adept at.
My comment on (being rolled over again) is this??

It appears to me that we got caught on Bail-outs for cost of bad -debt/possible repo.
And that we had covered off losses up to that time.

It now seems that good payers are now being re-hit on cost of Repos/arrears from that time.

Hence are we (in particular good payers) being double hit.

Thanks, Gerry.

 

[Andy836]

One of the biggest issues I have with the Irish mortgage market is the lack of choice in the product sets available. There is currently a choice between a variable rate pegged to thin air, and a fixed rate for up to ~5 years.

I would like to see real choice come into the market - a variable rate pegged to something (even the average outstanding mortgage rates), the option of paying an upfront arrangement fee for a lower rate, or a long-term/lifetime fixed rate. Other things that would be nice to see is the facility to overpay, followed by payment holidays up to the over payment point.

You want your variable rate pegged to something tangible then your mortgage needs to be securitized. Not many buyers of irish RMBSs given collateral is worthless.

Re overpaying amd redrawing, you're effectively looking for an overdraft. Overdrafts require capital so either you pay for it or the bank pays for it.

 

[Sarenco]

It appears to me that we got caught on Bail-outs for cost of bad -debt/possible repo.

At this stage it looks fairly likely that the State will recoup the full cost of its investments in AIB, BOI and PTSB.

It's beyond doubt that the difficulties experienced by lenders in resolving non-performing loans are increasing the average cost of credit.

 

[Sarenco]

You want your variable rate pegged to something tangible then your mortgage needs to be securitized.

Not necessarily - it's not uncommon for the interest rate on commercial loans to set at a margin over a lender's cost of funds.

 

[gnf_ireland]

You want your variable rate pegged to something tangible then your mortgage needs to be securitized

Not really. I want to be able to look at 3 different products from 3 different providers and compare them not just today, but also in 2, 5 or 10 years time. If they are pegged to something/anything, then this comparison is possible
Bank A offers 2% above EURIBOR
Bank B offers 1.5% above EURIBOR but has a 1000 arrangement fee
Bank C offers 3% above EURIBOR but offers a 1000 cashback deal
It allows me to compare beyond a point in time

Today, given the nature of SVR's they are based on thin air, and can change the day after drawdown just because the bank feels like it. A best deal today may be the worst deal tomorrow and visa versa. Its about making decisions on products, but making intelligent ones

BTW, I do agree that any mortgage should be a secured loan on an asset, and this means the bank should be able to claim the asset in the event of non-payment. This is why a mortgage traditionally has a lower interest rate than an unsecured personal loan. I also appreciate this is not the case today for a variety of personal reasons. This is a different issue that baselining an SVR on something solid

As @Sarenco says, this is not uncommon practice on commercial loans

 

[gnf_ireland]

I think that was the logic that gave rise to the low margin tracker phenomenon.

Was that not driven by cheap credit and new entrants entering the market who were trying to undercut the existing market players. I assume the banks assumed at the time that the credit of credit would always remain aligned to the ECB rate, as opposed to EURIBOR rates

I agree that Irish borrowers seem to be intent on borrowing the maximum amount possible (rather than focusing on the best long term deal) and the cash back offers feed into this market preference. It's hard to blame borrowers for trying to max out their borrowing capacity, on any terms, when defaulting on a mortgage has minimal apparent consequences.

I think I have aluded to the same sentiment as that - which is the banks will feed the market demands ultimately and enough people clearly want cashback deals at higher interest rates and less people want to pay arrangement fees to get cheaper rates. The banks would create the product if there was a reasonable demand for it.

I accept, by enlarge, the people commenting on here are not the average joe soaps when it comes to financial prowess. As a result, the opinions here only cater for one single (small) demographic, and even we cannot agree most of the time

 

[gnf_ireland]

Re overpaying amd redrawing, you're effectively looking for an overdraft. Overdrafts require capital so either you pay for it or the bank pays for it.

I don't believe i mentioned redrawing in that above post. I do consider this a nice feature where available to some people. Redrawing to me is more like an offset scenario, were the interest is offset by putting the money effectively on deposit with them.

What I said above is the ability to overpay, and then take a payment holiday. This is basically the scenario whereby the bank has extended credit to x based on the original assessment, and you agree a payment plan to repay this. You then overpay this so are effectively giving them extra funds which then are used when you underpay, until you reach the status quo again - ie your overpayments have been exhausted

I guess its akin to the view that if you overpay your mortgage you dont go into arrears until you exhaust the overpayments and you owe more than was agreed based on the original repayment schedule based on mortgage amortisation over the lifetime of the loan

Not sure I am making sense here, but makes sense in my 'head'

 

[gnf_ireland]

It's beyond doubt that the difficulties experienced by lenders in resolving non-performing loans are increasing the average cost of credit.

I think we all accept this, at least anecdotally. However is it reflective of the true different in the rates and is it reflective across all LTV groups

In this case, why do the banks not tell the Oireachtas committee the following:
- remove the difficulties in repossessing properties so a mortgage becomes a secured loan again as opposed to an unsecured one and will we drop the interest rates by 0.75% (for example)
- until you do this, it is government policy that is maintaining the high interest rates on home loans

Maybe this needs to be spelled out in plain english by the banks and put pressure back on the government to solve the underlying issues which may not be as politically appealing ! If I was them, I would turn the tables on the government and get them to back down as the impact of homelessness is bigger than the higher SVR rates !

 

[Sarenco]

I assume the banks assumed at the time that the credit of credit would always remain aligned to the ECB rate, as opposed to EURIBOR rates

It's certainly true that lenders assumed that the ECB refi rate would always be a good proxy for their cost of funds but, even so, their margins on origination were ridiculously thin in many cases. The only possible logic for this strategy was that the lenders hoped to sell other more profitable products to this customer base.

It's also certainly true that aggressive new entrants (coupled with extraordinarily lax regulation) led to something of an arm's race when it came to setting ever more competitive (frankly, ridiculous) tracker rates. ECB+0.5% - how could that loan ever be profitable?

Incidentally, both 6 and 12-month Euribor are actually marginally lower than the ECB refi rate at the moment.

The banks would create the product if there was a reasonable demand for it.

That's my point in a nutshell.

 

[Sarenco]

However is it reflective of the true different in the rates and is it reflective across all LTV groups

I think it's pretty clear that lenders have been pretty cautious about introducing true risk-based pricing into the Irish mortgage market. I've expressed surprise on here previously that no lender has aggressively targeted the "super prime" market.

Why is this the case?

I'm about to stray into an area where I really have no expertise but my guess (and it's just a guess) is that we Irish (including, shock horror, Irish bankers) still predominantly operate on the basis of a collectivist mindset.

I personally don't think that is necessarily a bad thing (in fact, I happen to think it's probably a good thing) but it might (I emphasise, might) help to explain the modest rate differential between an FTB borrowing at, say, 90% LTV over 30 years and a middle-aged switcher with an impeccable 20 year credit history refinancing at, say, 50% LTV over 10 years. From a risk perspective, the two loans are chalk and cheese but that isn't really reflected in the respective cost of credit.

Of course that could all be complete nonsense! What do you think is the explanation?

 

[Andy836]

Not necessarily - it's not uncommon for the interest rate on commercial loans to set at a margin over a lender's cost of funds.

A lender's cost of funds is an arbitrary figure. They'll class it as Base Rate or Prime or something like that which will allow them lump all sorts of stuff into it.