Honohan: "15,000 borrowers could benefit from switching lenders"

Brendan Burgess

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Here is a transcript of what Governor Honohan told the


One of the great inhibitors for the banks in lowering the standard variable rate is the fact that they look around and see inertia on the part of the borrowers who could switch. The Central Bank did a calculation and will probably publish something on it later on. We looked to see who could benefit from switching, given that there are spreads of rates. There is lots of information. Are there people who could benefit from moving to a lower-cost provider, bearing in mind that switching involves some costs, such as legal costs? Our people found that as many as 15,000 people could benefit a lot from the current rate. I am not saying that the current rates are even the lowest wherever they are for different circumstances and different loan-to-value situations. They are not particularly low, but even with the spreads that are there, there might be 15,000 people who, if they had the time to do the sums, could save a four-figure sum in a year.


I am not blaming anybody. We all know that we suffer from inertia and are not sure what is going to happen. It is the same with gas and electricity. If people were more savvy, banks would be more on their toes and we might see the rates go down, so I would encourage that. I am not in the blame game. I am encouraging more competition - competition from borrowers as well as competition between lenders. The lenders do not want to lower the rate if they do not see that they will get much new business from it. At the same time, they must bring down the rate on all of their back book because it is the standard variable rate. They have this huge back book, and they say: "Will we lower their rates? We will get more borrowers. Yes, that will be good." From a profitability perspective, the calculation is not as favourable as it would be in other circumstances.

 
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There would be a lot less inertia if switching was easier than divorcing.
 
When Boyd Barrett is good, he is very very good:


Deputy Richard Boyd Barrett: ... I am perplexed at Professor Honohan's belief in and commitment to competition as the way to sort out some of the issues that confront us. He has not really made the case for it. For example, he rails against administrative control of interest rates, that is, the State setting interest rates - even though he seems to suggest that they should be reduced and that there is an element of profiteering going on. However, he says we should not really have administrative control because that would impact on competition and the reason we must not impact on competition is just that we need competition, but without any real argument to sustain that. It was precisely the dynamic of competition that led to the bubble, uncontrolled lending and the crash that followed, so I really am quite perplexed.


It is not just in the area of interest rates that the argument does not stack up. Professor Honohan finished his contribution by saying that the banks have been damagingly slow in resolving the mortgage arrears crisis. That is a good case for administrative control, as are variable interest rates and what is happening in the whole property area. I would also like to hear Professor Honohan's comments on that. It is extremely worrying that property prices are going out of control, as that was such a big contributory factor to the crash. We had property prices going out of control, and people with low incomes were borrowing money they really could not afford, while chasing property whose prices were going through the roof. That also led to the crash. I do not see, therefore, how Professor Honohan can support his argument that, faced with these serious challenges and problems and the experience that we have just been through, the answer we have to get back to is competition.
 
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It's is a very good point. Why did he not leave the God of competition and the free market to sort out the arrears crisis?

Why did he not leave the market to sort out the mortgage lending limits?

Brendan
 
Is the Irish mortgage market too small for competition? Is it not fantastic for cartels. Small is easy.
 
If 15,000 can benefit from switching, that means that 285,000 won't benefit.

Brendan

I would suggest that the title of this thread, and this post in particular, is somewhat misleading.

The Governor actually said that there might be as many as 15,000 people that would benefit a lot from switching, which he went on to define as saving a four figure sum in a year.

He certainly didn't suggest that only 15,000 people can benefit from switching as suggested.
 
Sarenco, I think you are far too deferential to mr Honohan.As per usual, in this country, he suggests that the consumer do the leg work in order to secure some fairness. In a properly functioning economy (backed up by a decent consumer advocacy agency) this wouldn't be a problem. If we could secure even a 0.5% to 1.0% reduction in our Svr mortgages many more than 15,000(a derisory number) could benefit a lot. In which case the economy would also benefit and hence there would be more employment and more societal cohesion. Surely this is a fairer way of distributing wealth rather than the excess profit from my Svr going to a shareholder who by dint of the fact that they can afford shares are already wealthier than me
 
Sarenco, I think you are far too deferential to mr Honohan.As per usual, in this country, he suggests that the consumer do the leg work in order to secure some fairness. In a properly functioning economy (backed up by a decent consumer advocacy agency) this wouldn't be a problem. If we could secure even a 0.5% to 1.0% reduction in our Svr mortgages many more than 15,000(a derisory number) could benefit a lot. In which case the economy would also benefit and hence there would be more employment and more societal cohesion. Surely this is a fairer way of distributing wealth rather than the excess profit from my Svr going to a shareholder who by dint of the fact that they can afford shares are already wealthier than me

To be frank, I don't really have much sympathy for consumers that are not prepared to do the leg work to secure a better deal for themselves. The gods help those that help themselves.

You haven't said who your lender is but I would point out that the State now holds a major shareholding stake in our banking system. The State obviously funds a large number of social welfare programmes that benefit people that would never have had sufficient income or wealth to secure a mortgage. Would you put your welfare ahead of such people?
 
You haven't said who your lender is but I would point out that the State now holds a major shareholding stake in our banking system. The State obviously funds a large number of social welfare programmes that benefit people that would never have had sufficient income or wealth to secure a mortgage. Would you put your welfare ahead of such people?

Banks are not a State agency. They are a failed private enterprise.

I don't understand your point.
 
Paying2much spoke about "excess profit" from his SVR going a shareholder who by dint of the fact that they can afford shares are already wealthier than him/her. I am simply making the point that any such profits may well go to the State, as a major shareholder in our banks, which funds programmes that benefit people that in many cases are almost certainly less well off than Paying2much.

I agree that banks are not, and should not be, State agencies and the quicker the State's shareholdings can be sold back into private hands the better IMO.
 
Paying2much spoke about "excess profit" from his SVR going a shareholder who by dint of the fact that they can afford shares are already wealthier than him/her. I am simply making the point that any such profits may well go to the State, as a major shareholder in our banks, which funds programmes that benefit people that in many cases are almost certainly less well off than Paying2much.

I agree that banks are not, and should not be, State agencies and the quicker the State's shareholdings can be sold back into private hands the better IMO.


To be frank, I don't really have much sympathy for consumers that are not prepared to do the leg work to secure a better deal for themselves. The gods help those that help themselves.

You haven't said who your lender is but I would point out that the State now holds a major shareholding stake in our banking system. The State obviously funds a large number of social welfare programmes that benefit people that would never have had sufficient income or wealth to secure a mortgage. Would you put your welfare ahead of such people?





The answer is no, I don't put my welfare above others-I pay my income tax which is deemed by our government to be sufficient to cover social matters which require funding. I have no savings whatsoever and frequently get to the end of the month with 40cent in my pocket having paid my mortgage and all my bills. There are no agencies that I can turn to as I'm regarded as well off. You also assume that I am well off because I was given a mortgage a numer of years ago-now I will assume something about you. You seem to be financially savvy and probably have some cash on deposit so how about the government starts charging higher DIRT on your savings to pay for social issues. If you remember I was the one who mentioned societal cohesion. I have no problem paying my fair share. To suggest that 300,000 SVR people alone should be charged this stealth tax smacks of an "I'm alright Jack" attitude.
 
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The answer is no, I don't put my welfare above others-I pay my income tax which is deemed by our government to be sufficient to cover social matters which require funding. I have no savings whatsoever and frequently get to the end of the month with 40cent in my pocket having paid my mortgage and all my bills. There are no agencies that I can turn to as I'm regarded as well off. You also assume that I am well off because I was given a mortgage a numer of years ago-now I will assume something about you. You seem to be financially savvy and probably have some cash on deposit so how about the government starts charging higher DIRT on your savings to pay for social issues. If you remember I was the one who mentioned societal cohesion. I have no problem paying my fair share. To suggest that 300,000 SVR people alone should be charged this stealth tax smacks of an "I'm alright Jack" attitude.

I didn't assume that you were well off. I assumed that there are many in our society that are less well off than you (on the basis that you were in a position to secure a mortgage in the first place and are in a position to continue meeting your repayment obligations).

Yes, I do have some cash on deposit (largely to meet future income tax liabilities) and I currently have to pay DIRT @41% and PRSi @4% on the (relatively meager) interest earned. If DIRT increased significantly, I would simply move the balance to a bank in another jurisdiction in which case the Government would get zero.

I have repeatedly argued on this forum for the introduction of a statutory interest rate cap on mortgages based on new lending rates so that a degree of protection is afforded to SVR mortgage holders that are not in a position to switch providers for whatever reason. I don't know why you assume that I am not affected by high mortgage rates.
 
Sarenco, I think it is fair to assume that you are not affected by high interest rates because, while I would love to believe that someone could be so magnanimous as to brush off the fact that they are paying unjustifiably high rates on their mortgage, human nature would say otherwise. You revealed this when you said that you would move your funds to a different jurisdiction and so the government (and by extension many needy causes) would not benefit.
 
Well I'm afraid your assumption is incorrect, although I was fortunate enough to be in a position to switch out of a SVR mortgage some time ago.

I've obviously no problem with anybody arranging their affairs in such a way as to lawfully minimise their tax liabilities but I wouldn't assume that a shareholder in any company (or any dependant of that shareholder) is better placed to bear economic pain than a person that owes money to that company.

I suppose it's fair to say that my general philosophy is to try to understand and accept the world as I find it and then to try to make the most of it. I have had my fair share of misfortunes (and made some terrible mistakes) through the years but I never expected any white knight to come to my rescue.
 
Well I'm afraid your assumption is incorrect, although I was fortunate enough to be in a position to switch out of a SVR mortgage some time ago.

I've obviously no problem with anybody arranging their affairs in such a way as to lawfully minimise their tax liabilities but I wouldn't assume that a shareholder in any company (or any dependant of that shareholder) is better placed to bear economic pain than a person that owes money to that company.

I suppose it's fair to say that my general philosophy is to try to understand and accept the world as I find it and then to try to make the most of it. I have had my fair share of misfortunes (and made some terrible mistakes) through the years but I never expected any white knight to come to my rescue.

The fact that you can condone tax avoidance speaks volumes and confirms to me that you have an "I'm alright Jack" attitude. You don't expect one white knight-you expect 300,000 of them to fix our broken financial system so that in the future you will pay less tax. FYI Charlie Weston may, in your opinion, report inaccuracies but to be offered a little bit of hope can be what gets someone from one day to the next.I will not be replying to any more of your messages
 
There is nothing unlawful about tax avoidance - it simply means arranging your affairs to take advantage of the relevant tax systems. Interest earned on foreign deposits is, of course, taxable under the income tax system but is not subject to DIRT.

Again, as noted above, I have advocated setting a statutory cap on the interest rate that can be charged on variable rate mortgages based on the average new loans rate. This wouldn't benefit me personally but I believe some legal protection is warranted for SVR mortgage holders that are not in a position to switch providers.

I am not aware of any concrete proposals that Charlie Weston has made in this regard.
 
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