How much could a new lender cut mortgage rates by?

Gordon Gekko

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Copied from the thread on An Post - Brendan

It also depends what “1% lower than what’s on offer” means.

That could mean 1% lower than 4%!
 
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Brendan Burgess

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Hi Gordon

I was just thinking about this issue this morning. I am preparing to do an interview on Newstalk about An Post's proposal to have a new mortgage lender in Ireland next year which will reduce rates by 1%.

Here are the lowest rates for 90% LTV mortgages in Ireland

upload_2018-9-24_7-51-2.png

So, someone with a deposit of just 10% can get a mortgage at 2.3% and get €1,500 cash back.

Any of the 100,000 or so existing borrowers in positive equity who have a clean credit record who are currently paying Bank of Ireland or permanent tsb 4.5% could switch to Ulster Bank and get this rate, but they won't do so.

But even if they can't switch, they could just phone their lender and get a reduced rate, but most have not bothered to do so. A Bank of Ireland customer paying 4.5% could fix for one year at 3% and save 1.5%. On a €300,000 mortgage that is €400 a month just for making a phone call. And they won't do it.

So what could a new lender do to attract business?

As long as we don't allow repossessions in Ireland and while we allow the courts to write down the amount of a mortgage and the interest rate in a Personal Insolvency Arrangement, I would not give out 90% LTV mortgages. If I were to give them out, it would be at more than 2.3% and I would not be giving cash back.

Brendan
 

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Brendan Burgess

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So a new lender, worried about the lack of a repossession option, might target the <50% LTV market. Here are the rates:

upload_2018-9-24_8-2-4.png


If the average rate across the eurozone is 1.8%, then they might see the Irish market as attractive but at the current rates.

I can't see them cutting the rate by 1% to 1.3%. I would be delighted if they were to do so, but it seems unlikely.

And if most existing Ulster Bank customers who are paying 4.5% are unwilling to make a phone call to have their rate cut to 2.3%, they are unlikely to go to the hassle of switching to a new lender.

With half of all borrowers on trackers and probably around 20% of the remaining borrowers having an impaired credit record, the potential switching market is quite small.

Brendan
 
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Brendan Burgess

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I have always argued that Irish borrowers were not switching as all the lenders charged similar rates and there was no point in switching for a small saving.

But when Ulster Bank announced new rates of 2.3% on 29th June and KBC announced new rates of 2.5% on 17th July, I assumed that the other lenders would be forced to follow suit.

But the fact that almost three months have passed since the Ulster Bank rate cut and there has been no response from AIB or BoI suggests that they have not lost a lot of the share of new business.

And their existing customers don't seem to be switching either.

Brendan
 

Techhead

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I personally feel people are looking at the banks and their previous. I’m with aib on a higher rate and I would be concerned about going to UB KBC PTSB...if there are economic issues doing the road you could get stuck with the worst of the bunch... my 2 cents... I remember not too long ago when rates where 5% +
 

Brendan Burgess

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Hi Techhead

What rate are you paying AIB?

I think it's a close call whether to switch from AIB or not as they do treat customers much more fairly than others, generally speaking.

But if you are with ptsb paying 4.5%, why would you stay with them?

Brendan
 

RETIRED2017

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I have a Daughter living in Austria (she is Married and living in Austria both would have worked in Ireland he is Austrian)
Before she moved to Austria she would be on very good money in Ireland and would not have any problem moving jobs in Ireland and getting other jobs on the same money bracket,

They had more than enough saved to get a mortgage in Ireland going by Irish rules before they moved overseas,

In Austria they had to save for another four to five year to buy a house costing around the same money to buy as the House they were looking at in Ireland,

Austrian banks strip out all taxes/fees paid they also build in the amount of money you will finish up with if you had to sell the house the following day after sale is closed so you have enough to repay loan and meet/pay all cost incurred in the transaction,

When you take all into account the most you can borrow is around 60% off total,

Banks in Austria will say they have loan you 100% of the cost of house they will tell you the other 40% is made up of taxes/cost of buying and selling to repay loan ,
I think having met the above conditions Mortgage cost around 1.3 % the highest rate was around 1.7% all over a long number of years,
 
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Brendan Burgess

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Hi Retired

Coincidentally, the Austrian mortgage model was referred to last week at the Dublin Economics Workshop. I have been looking at it and have prepared a set of questions to ask one of the lenders in Austria.

I was wondering how it might apply in Ireland.

It does seem that there are some government subsidies involved. For example, a borrower has to save for 6 years first. The lender doesn't pay any interest - the government does. And the lender can issue mortgage bonds which are not subject to CGT on redemption so they can offer lower mortgage rates.

But I will be researching this Bausparen model in more detail to see if it would work in Ireland.

Brendan
 

RETIRED2017

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Hi Retired

Coincidentally, the Austrian mortgage model was referred to last week at the Dublin Economics Workshop. I have been looking at it and have prepared a set of questions to ask one of the lenders in Austria.

I was wondering how it might apply in Ireland.

It does seem that there are some government subsidies involved. For example, a borrower has to save for 6 years first. The lender doesn't pay any interest - the government does. And the lender can issue mortgage bonds which are not subject to CGT on redemption so they can offer lower mortgage rates.

But I will be researching this Bausparen model in more detail to see if it would work in Ireland.

Brendan
I Bought my first house back around 1978 it was a old land commission house built back around 1962/63 I only had it for a few years there was still an annuity to be paid after buying I suspect the annuity was paying back some kind of bonds but stand to be corrected,


The woman selling the house was telling me the history of the house and some land around it ,



She was telling me the land owner approached the land commission about selling the land to them at first land commission were not interested ,
The finished up buying land and built the house she was now selling,

I think i seen 68 years on some paper work,
The land commission had to give premission for the house to be sold,

At the time i had no interest in how the system worked , all i know is the house was looked after better than council houses built around the area around the same time,

I know the Legal People on hear would know how the system worked some might take the time to explain how it worked with forum,

The land commission system appered to work better than the council system back then,
 
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RETIRED2017

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Hi Retired

Coincidentally, the Austrian mortgage model was referred to last week at the Dublin Economics Workshop. I have been looking at it and have prepared a set of questions to ask one of the lenders in Austria.

I was wondering how it might apply in Ireland.

It does seem that there are some government subsidies involved. For example, a borrower has to save for 6 years first. The lender doesn't pay any interest - the government does. And the lender can issue mortgage bonds which are not subject to CGT on redemption so they can offer lower mortgage rates.

But I will be researching this Bausparen model in more detail to see if it would work in Ireland.

Brendan
i am glad to see you are looking at the Austrian/German system remember we are in the euro area if we mess up you know who will be visiting us again ,

We spend away two much time looking at what the UK are doing they are in the sterling area for the want of a better word
When we messed up it was the people from the Euro area who came to tell up what we could and could not Do

To be very fair our sterling UK friends chipped in to bail us out ,
If we mess up again we will hear the cry Frankfurt's way or Ireland's way, I say Frankfurt's all the way,
 
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Clonback

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I have always argued that Irish borrowers were not switching as all the lenders charged similar rates and there was no point in switching for a small saving.

But when Ulster Bank announced new rates of 2.3% on 29th June and KBC announced new rates of 2.5% on 17th July, I assumed that the other lenders would be forced to follow suit.

But the fact that almost three months have passed since the Ulster Bank rate cut and there has been no response from AIB or BoI suggests that they have not lost a lot of the share of new business.

And their existing customers don't seem to be switching either.

Brendan
An Post has a new chief executive with wide commercial experience who has no public service baggage and he has great communication skills.
He has made massive progress cutting out non profit making offices and increased income significantly.
Let's see what happens but a rate below 2% would definitely shake up the market.
 

Techhead

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Hi Brendan,

Moved to Aib earlier this year and on 2.95% variable . UB is bloody tempting I have to admit!!I was previously with EBS for a long time... always annoyed me when aib dropped rates and they did not. Totally makes sense for me to move to UB and take the cash back but I have the fear...
 

newirishman

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Hi Brendan,

Moved to Aib earlier this year and on 2.95% variable . UB is bloody tempting I have to admit!!I was previously with EBS for a long time... always annoyed me when aib dropped rates and they did not. Totally makes sense for me to move to UB and take the cash back but I have the fear...
What fear do you have exactly? There is nothing to lose, on the contrary, you are losing money right now.
 

RETIRED2017

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An Post has a new chief executive with wide commercial experience who has no public service baggage and he has great communication skills.
He has made massive progress cutting out non profit making offices and increased income significantly.
Let's see what happens but a rate below 2% would definitely shake up the market.
It is possible a new EU Mortgage provider carrying no baggage who is already providing mortgages in there home market under 2% will cherry pick and target long term existing mortgage holders who can show the never defaulted on any credit repayments offering these people a rate under 2%

The exiting banks will lose these cash cows who they are fleecing at present to cover low margins business written in the past ie low tracker mortgages who never defaulted and never will but are a stone around the banks neck for the next 20 years,
 

Techhead

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Fear of defaulting to a high variable rate with UB in 2 years and fear of being stuck with UB... perhaps irrational and concede I am loosing money in real terms by not jumping.
 

RETIRED2017

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I have always argued that Irish borrowers were not switching as all the lenders charged similar rates and there was no point in switching for a small saving.

But when Ulster Bank announced new rates of 2.3% on 29th June and KBC announced new rates of 2.5% on 17th July, I assumed that the other lenders would be forced to follow suit.

But the fact that almost three months have passed since the Ulster Bank rate cut and there has been no response from AIB or BoI suggests that they have not lost a lot of the share of new business.

And their existing customers don't seem to be switching either.

Brendan
All of the banks you mentioned above have low margin business on there books I suspect the other banks who also have lots of low margin business even more since lots of low trackers have to be witten back on there books,

They know Ulster Bank and HBC cannot go much lower,

The only time they have to move is when a new Mortgage provider comes into the market carrying no baggage who can under cut them and not affect existing business,



the CB and the government are doing a very good job minding the net up to now,
People who claim they want lower Rates should make sure the are not standing in the way stopping the ball from going into the net,

They are kicking the ball into there own net ,
 
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WorstPigeon

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And if most existing Ulster Bank customers who are paying 4.5% are unwilling to make a phone call to have their rate cut to 2.3%, they are unlikely to go to the hassle of switching to a new lender.
Is anyone actually paying that, though? Is there evidence that many people don’t avail of the fixed rates? For that matter, presumably most people on variable have one of the loyalty discounts.

I think the (real or perceived) difficulty of switching is probably more or a problem, though. I’ve been meaning to switch for about a year, but never got to it; currently changing job, but once I’m done with probation I’ll finally do it...
 

Brendan Burgess

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Is anyone actually paying that, though?
Yes. I have compiled the figures based on the data the lenders provided to the Oireachtas Finance Committee.

The last time I asked which was probably a year ago, only 20% of ptsb customers had availed of the right to switch to the lower new business rate.

Brendan
 

RETIRED2017

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Hi Retired

Coincidentally, the Austrian mortgage model was referred to last week at the Dublin Economics Workshop. I have been looking at it and have prepared a set of questions to ask one of the lenders in Austria.

I was wondering how it might apply in Ireland.

It does seem that there are some government subsidies involved. For example, a borrower has to save for 6 years first. The lender doesn't pay any interest - the government does. And the lender can issue mortgage bonds which are not subject to CGT on redemption so they can offer lower mortgage rates.

But I will be researching this Bausparen model in more detail to see if it would work in Ireland.

Brendan
just pointing out there may be merit in picking a house costing lets say 450000 and seeing how much bank will loan you and the balance required to meet all payment involved in buying a house ,Make sure you are sitting down when they give you the figures,

I do remember my Daughter saying something about waiting six years , If I recall correctly the waited almost 5 years but the max they could borrow was around 60% ,if i remember correctly the also pay vendor fees but I would need to cross check this, may be the other way around

I do know if they were to sell for any reason shortly after buying the would be down quite a lot of money,

I will check out figures when I am on to them and report back,
If i understood them correctly
Lets say you bought a 450000 house it would cost you 15% to 20% for fees /taxes 520000 to 540000
so you would get around 60% loan or 270000
You would need to have another 270000 to cover taxes and fees so really you only got a loan for around 50% of cost of house when all is taken in to account,
I am sure there must be a poster on hear who would be in a better position to give a more accurate figure ,
The point I am trying to make hear is you need to look at the total cost of buying a house and % of loan,
Posters feel free to correct any incorrect information,
 
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gnf_ireland

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It is possible a new EU Mortgage provider carrying no baggage who is already providing mortgages in there home market under 2% will cherry pick and target long term existing mortgage holders who can show the never defaulted on any credit repayments offering these people a rate under 2%
The exiting banks will lose these cash cows who they are fleecing at present
I have to agree here. For a bank in the current environment to offer under 2%, they would need to
(a) cherry pick their customers and those with AAA rated credit only would be accepted
(b) have very low LTV and LTI ratios
(c) not offer cashback, but in all likelihood request an arrangement fee
Would it work - yes, for a certain cohort. Would they win large volumes of customers over - not 100% sure on that. The rates in Ireland are more 'reasonable' than a few years ago, especially when you factor in cashback. The issue is the rates customers default back onto after the initial period are still way too high, and the banks relying on apathy to maintain the cash cow.
I know a few people who have come up with all sorts of excuses not to switch to avail of a lower rate. I don't think going from 2.4% to 2% will change their mind, when going from ~4% to 2.4% has not !!
 
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