"It's wrong to compare high SVRs in Ireland with the rest of the Eurozone"

Brendan Burgess

Founder
Messages
37,953
Karl Deeter challenges the idea that SVRs are too high in Ireland on his blog here.

SVR’s: Comparing apples to oranges is bananas


Let me deal with the points one by one.

1. There are arrangement fees in other countries

There may well be, but it's not beyond the mathematical skills of people to incorporate a comparison into the arrangement fees. In fact, it's possible that the calculation of APR incorporates them. I don't know.

Say a French customer pays their lender 1% of the loan balance as an arrangement fee. Let's say that the average mortgage duration is 7years. That is an increase in APR of 0.14%. Irish customers are paying 2% more. Arrangement fees are not the reason.

2. Looking for the Central Bank to ‘set prices’ is not only outside of the Central Bank’s remit, but it is also a responsibility they don’t want,

So what? This is a separate argument to the "it's wrong to compare our interest rates with those in other countries". Even if you think our interest rates are right generally, Irish borrowers whose loans have been sold are very vulnerable. If Danske or Pepper or Tanager increase the rate to 10% tomorrow, there is absolutely nothing which the Central Bank or the government could do. The Central Bank must be given the power to control interest rates and it would be hoped that they would never have to use it.

3. The National Consumer Agency should be lobbied before the Central Bank.

I have contacted the CCPC (The Competition and Consumer Protection Commission who have taken over from the NCA). Brian Hayes has met them. Michael McGrath has written to them.

They say it's not a good use of their resources.

I think it's an absolute disgrace that the body charge with protecting consumers and promoting competition is doing nothing about the biggest consumer issue of all.

4. Rates are falling anyway.
Back in August, I highlighted the fact that the Central Bank were misleading people about interest rates and that our rates were not just a bit above the Eurozone, but a full 2% above the Eurozone average. As far as I know, no banks had reduced rates up to then. A group of us has highlighted this fleecing by the banks. There was absolutely no evidence before this, that the banks were considering reducing their rates.

5. Other countries have favourable taxation treatment on mortgage funding, in Ireland we don’t.

Richie Boucher suggested that German banks had favourable treatment of mortgage funding. This may be true, but I was not able to confirm it one way or the other. So it might justify lower rates in some countries, but if such favourable treatment exists, it does not exist in all countries.

6. Our deposit rates are off the chart (compared to Europe).

They are not at all. I have done a separate thread on the issue here:

"Mortgage rates are much higher in Ireland because deposit rates are much higher"


7. No new banks have come here… If we have such desirable rates which grant windfall gains why are retail banks not falling over themselves to lend here?


This is a really big question. They are certainly put off by the regulatory regime in Ireland. The CCMA is very expensive. As you point out, mortgage lending is effectively non recourse. But it does not explain why a foreign lender does not set up here and cherry pick 70% LTV loans. The higher risk of lending in Ireland should not affect the price of these loans.

I think the main reason is that most lenders have retrenched to their own countries and are not looking to lend outside them. I would hope that, in time, a foreign lender will see how profitable the Irish market is.

8. Other countries don’t have 50% of their mortgage book on trackers,

This argument has no validity. Say my local convenience store agrees a contract with 50% of its customers to provide them with their needs at less than cost price for the next 20 years. To compensate for this, they charge new customers twice the market price. If the shop owner argues that his "blended margin is average", well new customers will just take their business elsewhere.


Final point
The ultimate issue in this debate is that we are comparing apples to oranges. The rates in Europe are not related to the rates in Ireland any more than they are to the rates in Turkey because we don’t have a common market (unlike much of the USA) and within the EMU there is too much local variation to allow reasonable comparison.


Of course you can compare rates in Ireland with the rest of the Eurozone.
In fact, after misleading the public for years, I suspect that the Central Bank will be doing that today. After adjusting for different tax treatment of depositors, higher risk for high LTVs in Ireland, a higher regulatory regime and arrangement fees in other countries, you will find that Irish lenders are fleecing their customers because there is no competition.

Brendan
 
Last edited:

Bronte

Frequent Poster
Messages
13,458
My arrangment fee was the grand total of 250 Euro ! And I'm nearly possitive I paid some kind of fee to EBS back in the day and Ulster bank at one stage too.

As for competition, Ireland is too small for them to bother coming here. The big banks have it sewn up in any case.
 

MortgageGuy

Frequent Poster
Messages
81
Karl Deeter challenges the idea that SVRs are too high in Ireland on his blog here.

SVR’s: Comparing apples to oranges is bananas


Let me deal with the points one by one.

1. There are arrangement fees in other countries

There may well be, but it's not beyond the mathematical skills of people to incorporate a comparison into the arrangement fees. In fact, it's possible that the calculation of APR incorporates them. I don't know.

Say a French customer pays their lender 1% of the loan balance as an arrangement fee. Let's say that the average mortgage duration is 7years. That is an increase in APR of 0.14%. Irish customers are paying 2% more. Arrangement fees are not the reason.

2. Looking for the Central Bank to ‘set prices’ is not only outside of the Central Bank’s remit, but it is also a responsibility they don’t want,

So what? This is a separate argument to the "it's wrong to compare our interest rates with those in other countries". Even if you think our interest rates are right generally, Irish borrowers whose loans have been sold are very vulnerable. If Danske or Pepper or Tanager increase the rate to 10% tomorrow, there is absolutely nothing which the Central Bank or the government could do. The Central Bank must be given the power to control interest rates and it would be hoped that they would never have to use it.

3. The National Consumer Agency should be lobbied before the Central Bank.

I have contacted the CCPC (The Competition and Consumer Protection Commission who have taken over from the NCA). Brian Hayes has met them. Michael McGrath has written to them.

They say it's not a good use of their resources.

I think it's an absolute disgrace that the body charge with protecting consumers and promoting competition is doing nothing about the biggest consumer issue of all.

4. Rates are falling anyway.
Back in August, I highlighted the fact that the Central Bank were misleading people about interest rates and that our rates were not just a bit above the Eurozone, but a full 2% above the Eurozone average. As far as I know, no banks had reduced rates up to then. A group of us has highlighted this fleecing by the banks. There was absolutely no evidence before this, that the banks were considering reducing their rates.

5. Other countries have favourable taxation treatment on mortgage funding, in Ireland we don’t.

Richie Boucher suggested that German banks had favourable treatment of mortgage funding. This may be true, but I was not able to confirm it one way or the other. So it might justify lower rates in some countries, but if such favourable treatment exists, it does not exist in all countries.

6. Our deposit rates are off the chart (compared to Europe).

They are not at all. I have done a separate thread on the issue here:

"Mortgage rates are much higher in Ireland because deposit rates are much higher"


7. No new banks have come here… If we have such desirable rates which grant windfall gains why are retail banks not falling over themselves to lend here?


This is a really big question. They are certainly put off by the regulatory regime in Ireland. The CCMA is very expensive. As you point out, mortgage lending is effectively non recourse. But it does not explain why a foreign lender does not set up here and cherry pick 70% LTV loans. The higher risk of lending in Ireland should not affect the price of these loans.

I think the main reason is that most lenders have retrenched to their own countries and are not looking to lend outside them. I would hope that, in time, a foreign lender will see how profitable the Irish market is.

8. Other countries don’t have 50% of their mortgage book on trackers,

This argument has no validity. Say my local convenience store agrees a contract with 50% of its customers to provide them with their needs at less than cost price for the next 20 years. To compensate for this, they charge new customers twice the market price. If the shop owner argues that his "blended margin is average", well new customers will just take their business elsewhere.


Final point
The ultimate issue in this debate is that we are comparing apples to oranges. The rates in Europe are not related to the rates in Ireland any more than they are to the rates in Turkey because we don’t have a common market (unlike much of the USA) and within the EMU there is too much local variation to allow reasonable comparison.


Of course you can compare rates in Ireland with the rest of the Eurozone.
In fact, after misleading the public for years, I suspect that the Central Bank will be doing that today. After adjusting for different tax treatment of depositors, higher risk for high LTVs in Ireland, a higher regulatory regime and arrangement fees in other countries, you will find that Irish lenders are fleecing their customers because there is no competition.

Brendan
APR factors in compounding periods and all fees and charges DURING the loan, not prior to it so this isn't factored in.

Read today's Central Bank report and it doesn't come across as condemning of the banks at all, in fact, the main recommendation for dropping rates is to avoid whatever policy intervention might come about!

(btw: well done on campaigning for this)

Also: Rates in Europe point - the CB report shows quoted rates in the UK, they are 4.51% - higher than here! (there is an effective rate explanatory note which factors in teaser rates etc.).

Our 'outstanding debt' blended rate is 2.8% which is right near the European median,

Totally agree with you on this point: I think it's an absolute disgrace that the body charge with protecting consumers and promoting competition is doing nothing about the biggest consumer issue of all.

On point 8: I equally disagree, the total net interest margin is of grave importance to the banks (any bank) and this is highlighted several times in the Central Bank report. I don't know what to say other than I believe you are wrong to dismiss this. They also highlight many of the issues with the Irish Apples to European Oranges in this report too. (starting to wonder if I couldn't have written some of it myself :))

Lastly: rates are falling anyway - this is true, I emailed you the graph, and while fixed rates are often 0.7% below the variable and open to all customers, negative equity or otherwise, one must really ask with who some of the responsibility lies? Why aren't people picking up the phone and saving a few thousand for the sake of the price of a phone call?

Anyway, we disagree sometimes, and I have never found any debate with you less than enjoyable so please don't take any of it as a personal 'go' at you. Far from it.
talk soon
karl
 
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