Discussion in 'The Fair Mortgage Rates Campaign' started by HollowKnight, 10 Feb 2019.
It seems the cash back trend may cease relatively soon.
That might encourage some more competition on the real costs / interest rates.
I've had some (intelligent!) friends draw down their first mortgage recently and went with the cash back offer banks rather than the lowest rate bank.
The sooner that cash back offers are removed, the better for rates competition.
It's starting to sound like PTSB are completely reviewing their mortgage proposition, so thus might not be external factors.
They've reduced BTL fixed rates today, and the below comment is in news:
"A spokesperson for Permanent TSB said the bank would be undertaking a number of initiatives in the coming months to strengthen its commercial offering on mortgages for both home owners and BTL customers."
Interestingly, KBC saw a drop in market share of new mortgages in H2, despite competitive rates, which shows cashback is distorting market shares. I suspect CBI might amend their macro Prudential rules - at the moment banks are able to use cash backs to effectively give 92% mortgages without using exemption.
I think banks are basing their business models around the fact that LTI is a more important metric than LTV for mortgage sustainability. The CBI macro-prudential rules basically give LTI and LTV equal weight.
One could argue that in a repossession-free world, LTV shouldn't matter at all!
Are you agreeing with me, or contradicting me?
Regardless of how banks assess affordability and credit risk, they have to adhere to both CBI rules, and it is obvious that CBI rules are impacting the mortgage market - firstly by introducing a seasonality to the market because exemptions are measured on a calender year rather than rolling 12 months, and secondly by giving certain product offerings an advantage.
Compare 2 offerings for a FTB that just scraped together their deposit:
1. 90% mortgage with 2% cashback, @ 3% interest rate, or
2. 92% mortgage, no cashback @ 2.3% interest rate
Which one costs FTB more, and which one is a breach of CBI rules?
I agree that banks are using cashbacks to get around LTV rules. If the CBI take these rules seriously then they may well intervene to close the loophole.
A separate point is that I think LTV rules are a blunt instrument if you want to reduce credit risk at system-wide level. Obviously >=100% is too much, but I don't think that 95% is problematic for someone with a low LTI, solid employment and track record of repayment.
Central Bank want to retain cash back because buyers need to buy new refrigerators!
I thought that you were being sarcastic. But it turns out to be a direct quote from the article
The cashbacks are useful for new buyers to buy the likes of a fridge for their new home, according to Central Bank sources.
Central Bank senior officials believe cashbacks should remain on the menu of mortgage options. They argue that they are particularly beneficial for those who switch their mortgages regularly.
Regulators feel there are more important issues to be addressed in the mortgage market, such as the cost of funds for banks.
Is the cost of funds an issue for the banks?
I would not have thought so.
The main issues impacting on rates are
The lack of any sanction for people who don't pay their mortgage
Central Bank rules which apply the loss experience of 100% mortgages issued at 5 times earnings to people today who are borrowing 80% at 3.5 times earnings.
Why stop at banning cash-backs?
Why not insist that lenders charge loan arrangement fees? After all that's the norm on the continent and it clearly results in lower interest charges.
TBH I find it hard to get exercised one way or another about cash-back deals. They almost certainly encourage switching, which has to be a good thing.
The reason we have high mortgage rates is pretty obvious - our extraordinary default rates.
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