Irish Mortgage Brokers Blog

I have read several articles in this week in our  national papers and in them the authors said ‘banks are not lending’ and in one it was implied that this was somehow wrong. A point of order must be raised, firstly, it’s not wrong and secondly they actually are lending, just not freely or irresponsibly.

The frustrating thing is that even after all of the fallout, all of the crashing property prices, all of the international crisis news, that so many people still don’t get it. Cheap credit and easy lending is what go us here to begin with, we won’t fix the Irish economy with more mortgages being freely available.

Lobbyists take note: While you might strong-arm or influence the Government (I don’t know which method lobbyists use but either way they are effective) into supplying money for mortgages via recapitalisation or Homechoiceloan or any other plan, the fact is that reasonable people will not sign up to it, they will buy when they are good and ready, and when they have some confidence.

Are banks lending? In short they must be or Irish Mortgage Brokers wouldn’t exist, nor would any other mortgage broker. We are successfully helping our clients who do want to borrow in the current environment to find the best deals and these loans are drawing down. The common thread however, is that banks are reapplying traditional standards.

What does that mean? It means that getting a mortgage is not an ‘entitlement’ it is not a ‘right’ nor will it be ‘easy’, nor should it be, it is ease of credit and the large supply of it, when matched with extremely low interest rates that were kept down for too long that fuelled the Irish property boom, I now refer to it as the ‘ka-boom’ because we are now at the second stage of the explosion, only this time its a downward trajectory.

Lend freely, at high margins, and on good collateral with adequate security. That is what must be done in order for banks to survive. The laughable issue is that the state made a big song and dance about ensuring loans were provided to first time buyers! In fact, businesses need the money more, the first time buyer market is quiet at the moment for the very reason that confidence, job security, and a falling market don’t normally result in lots of transactions, the adjustment is natural, our reaction to it however, is far from that.

There is no ‘entitlement’ to credit, anybody who goes down that road is only setting us up for property-crash 2.0. The explosive mix of easy credit, historically low interest rates and a wall of liquidity with a glut in savings is the precise combination that brought us here, if anything, banks are doing the sensible thing in paring back lending at least to some degree.

As a mortgage brokerage we are obviously feeling the pain of this more than most, but it is the medecine that must be taken in order for there to be a market in the future, if we fan the flames of the toxic tiger during its death knell we won’t resurect a healthy creature, we’ll merely reincarnate the beast that brought us here to begin with.

I was asked by a colleague in the UK to provide an overview of the Irish mortgage market, he has often advised the Bank of England in the past on the UK buy to let market, however this time it is in relation to a talk he was due to give to an international financial services group on the Irish economy. Below are the contents of my correspondence which is a no holds barred view of the mortgage market in 2009.

Remortgage: This area is finally starting to see some life again, the rate drops are filtering through and many of the people on fixed rates taken out in 2005/2006/2007  are shopping around, as always new business attracts better rates than existing customers so there is once again an argument for switching.

However, the many people who took out trackers are basically out of the market in the long term as every single lender has removed tracker mortgages from the market, in fact, if you know of a lender willing to do tracker mortgages in Ireland they could hit the market and win on that basis alone, trackers are consigned to financial history on the emerald isle - at least for now.

The one area that seems to be getting some transaction speed is that of top-ups for improvements, people are not gearing up to buy a new house, instead they will improve that which they have already. The one downside is that many Irish lenders will not do a totally separate second mortgage top up - keeping the original at its rate/term etc.- and the reason is because there are so many negative margin loans out there, almost every residential tracker is currently negative margin when you consider cost of funds [although that's doing better for now], cost of distribution, and then margin. The crunch hit the banks bad on these loans, some were as low as ECB+0.5% so you can only imagine what Euribor cost of funds being at over 1% above ECB during the bad days was doing to the book and liquidity of same!

Buy to let: This end of the market is basically dead, the issue is acute on the supply side but mainly on the demand side, there are estimates of between 45,000 and 100,000 empty units (some unofficial sources cite even more than that). The industry economists all figure from 60-100k of empties, that means the supply side is swamped for a population the size of Ireland. Prices will fall and residential sales are going to be a slaughterhouse for some time to come.

On the demand side the issue is that paradoxically prices and rents are falling in tandem, a damnable situation, prices fall due to oversupply and confidence/credit crunch etc. the rental prices are falling because of oversupply of stock, competition for tenants, a need to meet payments even if it is loss reduction rather than meaningful yield, as well as that many of the Eastern European renters are returning home. Completions are still flowing  through, on the issue of attracting a tenant the competition for tenants is high, i had to drop rent by c. 45% on my Irish investment property to get it occupied.

The sensible proposition at present is that the state could buy some really cheap social housing, or if a buyer had enough cash/finance they could likely  bulk buy units at huge discounts, having said that, accurate market valuations are hard to come by, it is in the realm of educated guesses because with many distressed sales due to developer/owner going broke a suppressed price implies the ‘market’ price which is not the case in truth but the market only accepts that as it is the point at which a transaction occurred.

For me, i don’t really care about prices, instead i am watching yields and when they get over 7% investors will go back in feet first. I think the concept of cash flow will be the fundamental in property in the short to medium term, it is going to be viewed the same as bonds currently are - yields yields yields. Really it was continued market strength (when yields stopped making sense) seeking capital appreciation that caused the pendulum to swing so far beyond acceptable values.

Switching: moving lenders is really bunched in with re-mortgaging, the idea of using your house like an ATM is no longer popular [rightly so] thus the movement in the switching market is the same as the re-mortgage market. There are deals being done but a trend we have noticed is that it is primarily people who are on bad value variable deals already, again, the folks with trackers will likely sit tight unless we get the inflation wave [which I personally expect] at the end of this which may entice them onto fixed rates in the future.

New home buyers: an area with at least some life in it! Many buyers realise that prices are much lower as are interest rates, if rates go up 1% you would need to have bought a house for a few grand less on price to make up the difference, its an interesting mathematical approach which people need to be aware of. A house for €300k over 30 yrs. at 4% is actually €6,000 cheaper than a €270k house at 5% and with the long term rate outlook being a rise eventually it is perhaps better to lock in now rather than later, personally that is my intention.

The state is getting on board with a thing called homechoiceloan which is literally like a mortgage bank, they already do shared ownership and affordable housing too, currently even with 20% discounts many banks won’t lend on these, partly due to councils not being in line with the actual market - their valuers price totally differently than independent valuers - and then the profile of the lender who qualifies for this kind of loan. In many cases developers are selling for comparable prices with ‘affordable housing’ diminishing the attraction of the programme.

Developers are slashing prices, one in Kerry is actually doing a 2 for the price of 1, who would have thought you’d ever see that in property!

Niches Markets: The only one I would consider at the moment is distressed debt/portfolios. The confidence is so utterly low that people would literally sell at cost to get out of deals/debts. Commercial property is now taking a spectacular dive, if you had a good tenant arranger and the right finance this may be an option, stamp on this is likely to get changed in the near future, but for now its a total barrier to entry. Unless you were to get into buying properties with motivated buyers and turning them into duplex’s etc. in desirable locations then I wouldn’t have any novel ideas currently but that depends on your timeframe to a degree. The place with the most movement is the first time buyer market and after that the remortgage market.

Product guide:

Homeloans: We are now in a market with fixed rates, variable rates, and LTV variables, where you get a variable [no fixed margin] depending on the LTV, rates are c. 3-6% many banks don’t have the money to lend so they are using the blunt instrument of tranche management and high rates to control the book.

Changes in strategy of lenders: Hardened criteria and industry underwriting are prevalent, for instance, if you work in finance it seems you are persona non grata, in the past 100% mortgages were everywhere, now LTV’s are averaging much less, several lenders - Haven, KBC [formerly IIB] are only doing 80% loans, others are offering 90% but getting the money and approval requires the patience of Job and the earnings potential of Warren Buffet. suffice to say the market is not frozen but a single sentence sums it up

“Banks will lend to very strong candidates, on good collateral at high margins” - almost sounds like an old central bank mission statement!

Who is the best: The Irish banks will be partly recapitalised, as regards balance the best is likely AIB, regarding product they are also top table much of the time, Ptsb is likely to reduce or even remove some offerings, First Active/Ulster [RBS owned] are not very competitive, they are doing some 90% loans but ensuring they get the margin for doing so. Haven/EBS are lending but the press have been releasing many rumours about their financial health, unlike many banks they still have men on the ground though which is a good sign. Bank of Ireland have harsh criteria but decent rates, top end of the mid-table. NIB who don’t deal with brokers are offering a lot of really good deals but at their multipliers - even with low property prices - few would qualify, they are the best for low LTV’s, as regards an ‘approach’ i guess i would say caution is king.

Borrower integrity: The reduction in lender integrity is there but both pre and post lending but thus far it is down to job loss/redundancy and the things that are killing every economy in the developed world. Certainly the underwriters have developed a new brand of risk aversion where they factor in eventualities that don’t even exist, for instance - successful currency trader refused [we didn't even ask them to consider bonus etc.] because the institution he worked for got downgraded by S&P.

Equity release for retired couples: if you are talking about residential reversions or reverse mortgages then these are gone from the market, the companies offering this have all closed down, they had the double hit of factoring in too much on the potential growth of Irish property, one of them did securitise the loans out one house at a time which I thought was novel but the business model broke irrespective of this.

Regarding a brokers ability to trade: Falling prices, yes, this took confidence and transactions out of the market, we are in the transaction business so if prices dropped it doesn’t ruin brokers, it’s when transactions freeze up that we get hit. Probably the harshest development is the confidence killer that is combination of credit crunch/falling prices/credit criteria - albeit some of these are required to reach market clearing levels. Naturally prices will drop beyond true value on the way down the way they exceeded true value on the way up, the issue is when and more importantly what is the true market value.

Negative equity: The press seem to love to write about this one, I have often argued that negative equity is interpreted rather badly, it only becomes negative if realised, actually being in negative equity doesn’t change anything unless you are also forced to sell and crystallize the loss, however, for those who do find themselves in that position it is catastrophic. And the harsh reality of having paid more for a property than it is worth is a confidence and financial killer. It has turned people off of buying and it gets mentioned virtually every day in the papers.

Reduced lending capacity: This is the other part of the squeeze on prices, we spoke about supply and demand already, the reduced supply of credit is a third factor which is pushing the prices of property down from outside of the property specific supply demand spectrum. There is nothing one can do about this and yet you can only wonder what would happen if credit became easily obtainable again, I don’t know that we would see reflation unless there was a zero rate policy and a huge money supply creation which is a circular proposition as at the root of this crisis are low interest rates, increased liquidity and money supply.

Lenders cutting out brokers: This is key, originate and hold seems to be the route for many banks as they move away from the originate to sell/securitise model, we are seeing dual pricing and it is there to specifically remove the broker, banks say it is so that they can get the cherry on top [life assurance etc.]. The intermediary market makes less sense in a downturn, why pay a broker when you already have to cover branch costs? And in a market as simple - in terms of lenders and options- as the irish one the argument for ‘going direct’ is strong, particularly in advertisements. We are still only at a 50% penetration for broker use for mortgages which is substantially less than the UK.

Reduced commissions are the other side of the coin, and this is the one that may be the rock many brokers perish on, costs have not reduced at the speed that commissions have. Commissions have dropped on average by 30% but the main banks lending dropped by c. 50% so the actual hit to a working brokerage is c. 40%, this when combined with a massive restriction of credit in a falling property market has created what we can only describe as ‘the perfect storm’.

However, we are not being discriminated against, the overall picture in banking is bleak at the moment, I’m an ‘optimistic bear’ for now. The banks are getting hit on both sides as well, impairment charges are high which hurts liquidity, their book, and their ratings. The rush for depositors means they have to offer exceptionally high deposit rates (compared to historic norms v.s. base rates/euribor), and when rates drop they are being pressurised into passing on the rate cuts to the mortgage market. This is actually bad for them though because they can’t do the same to the depositors or they will move their deposits so the compression sets in of reduced mortgage margin and paying out higher deposit margin, it is actually the opposite of the traditional banking model and somebody will go bang due to it, already banks have required capital injections. [since writing Anglo were taken over by the State]

This should be enough to give you the general idea of how it looks in Ireland coming into 2009.

Our firm [and I am sure many brokerage firms] are witnessing a conundrum in the market which is causing both clients and the broker a huge amount of heartache. It is that of the ‘AIP’ or ‘Approval In Principle’ not being honoured by banks over short periods of time. One lender in particular [we can't name names] is doing that on so many cases that we no longer consider their approvals as holding any relevance.

What is an approval in principle (A.I.P. is the broker-speak we use to describe them)? It generally means that you have given a bank enough information to make a strong [and yet preliminary] decision on a case, sometimes it is subject to further documentation, or they want to get a valuation report before making a full offer, in any case an AIP is NOT a loan offer but it is as strong an indication as one can get without dealing with solicitors, in the past an AIP was honoured almost exclusively and they were seen as fundamental to operating within your budget.

When did banks start to change their minds on AIP’s? Well, like many things 2008 was the year! Although recently they have changed their direction a little in how they are doing it, last year they would say ‘criteria changed’ or give some other equally useless excuse, now they are just telling us ‘we are not doing that deal’. If you want a cure for low blood pressure then try explaining that to a client who was told that an AIP was something that a bank would honour as long as the conditions on it were met.

So we now find ourselves in a situation where an AIP is merely part of the formality of getting a loan offer, and worse again is that we are trying to get loan offers as quick as possible before the banks change their mind and revoke it which puts stress into an already stressed financial system. When an approval no longer means an approval then the only other choice is to get an ‘offer letter’ but doing so will cost in terms of valuations fees, engineer reports etc. and it merely distorts a functional system into a broken one. We strongly urge banks to desist from such calamitous practice, it is one thing to be frenzied in a crisis but another to act disgracefully in the face of it.

If the State can’t organise a bailout effectively then what hope have they of running a bank? A simple and yet profound question: if the bankers who run banks for a living (many having survived the 70’s and 80’s) can’t find the answers then what hope have the state who have no track record in doing so?

This is not a simple situation, banks that survived the Great Depression have crashed and burned, given this, is it vital to save every bank? Is a bank going to make it even with a slush fund? Thus far I remain unconvinced.

Anglo Irish Bank was set to get a bailout to the tune of 1.5 billion Euro. This couldn’t be arranged in time to save the bank and they have been nationalised, the speed of their fall from grace tells us at least some basic facts:

Anglo were not the strongest bank in the bunch, I won’t get into balance sheets, loans, impairments or anything else, the mere fact that they fell first means they were the weakest bank. The state stepped in and saved them - but what will this mean for other banks and what are they hoping to achieve? They have put a guarantee in place that they cannot back down from because that would have a catastrophic result. They have tried to organise a bailout and instead had to change tack and nationalise them.

This has virtually ensured further bailouts, if you save the weakest member of the herd then you absolutely must save the strongest members who are likely to encounter similar issues as general confidence in our banks and national debt decline.

Constantly we are told that there can be ‘no bank left behind’, and while that works well in theory the reality is that reckless trading goes unpunished and remaining executives in other institutions will spend more time engineering their golden parachute than saving the ships they currently steer.

What should have been done is to allow Anglo to go under and instead prop up the stronger banks, the shareholders would be severely hurt but, I am heavily invested in Anglo shares and am acutely aware of the impact, laughable is the shareholder pay off being put forward, you simply cannot go down the route of also bailing out shareholders as well!

Other banks have already had that risk (of nationalisation) priced into their shares so why bother? Let happen what must, even though many of the shareholders are pensioners and the like, for the pension funds that held the shares the insurance firms should reconsider their choice of management. The ugly but true fact is that there will, and indeed must be suffering in order to get to the other side, otherwise we will enter into a fiscal realm of trying to throw every person a lifeline while the ship itself is burning.

The blame game doesn’t solve the issue, I was explaining to a friend that crystallising the failure into hidden directors loans is like fighting a forest fire, then blaming your subsequent lung damage on passive smoking from the guy beside you who was smoking a cigarettes.

Ask yourself this: What actually happens when a bank goes bust? What is the total process? One thing to remember is that the profitable sectors of the company will be chopped off and sold, if other Irish banks were capitalised (saving the strong rather than the weak) then they would receive the benefit of the profitable portions.

The state would have to ensure - as per the guarantee- that depositors are protected, the people who borrowed would remain as liabilities [and there are funds out there buying distressed debt for the toxic elements of the book - which we the people now own], deposits would move to the stronger bank/s giving them better capital positions, this puts a price on the loss and then you deal with the bill, instead we may see a long and grinding descent into a state owned zombie-equivalent bank.

Rather should focus on saving the strong, allowing the weak to close, that is the natural law of business, nobody said you have to like it.

The Euribor 3 month money is at 2.822% which means the margin on interbank money is now at 0.322% (the current base rate is 2.5%) over the base. The Credit Crunch by definition is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. One of the biggest hallmarks of the whole financial crisis was the disjointed relationship of the Euribor from the ECB.

Traditionally the Euribor (we are talking about the 3 month money generally) trailed the ECB at c. 0.1 to 0.2%, so if the ECB base rate was 4% then the Euribor was (approximately) 4.13% or something like that. In July of 2007 this all changed and margins on interbank lending shot through the roof, to such an extent that literally thousands of loans in Ireland alone turned into negative margin mortgages.

This caused a heavy financial contraction as banks struggled to both de-leverage, meet cash flow obligations, and trade while maintaining liquidity when their lending book that was performing was acting against them and the loans that weren’t were causing impairment charges! It has been a genuine damned if you do and damned if you don’t year for banks (2008). This process is far from over and it is the second wave, the Alt-A and the second group of ARM loans coming on stream in 09′ that will tell us just how far down the rabbit hole we are.

There was a huge deal of rate compression as well, banks were vying for deposit customers and offering high rates of interest, equally they were losing money on mortgages and recently being pressurised by the state to pass on rate cuts to clients who were not contractually entitled to receive them. This was likely done to curry favour with the government in the belief that their help would be required in the near future (and thus the bailout has already begun).

Now however, it seems we are seeing the end of the total uncertainty in the interbank market and we are entering the land of volatility, that will stay with us (and with the markets) for some time. However, one of the key symptoms of the Credit Crunch seems to be resolving and that can only mean that on some level the system is on the mend, it does not mean ‘cured’ but at least the signs for now are not getting worse. If the interbank market continues to stabilize it will go some way towards banks resolving their balance sheets and that will mean less of a cost to taxpayers in recapitalisation costs.

With the news coming out daily about prime lenders facing higher and higher impairment charges it begs the question of who will do better during a downturn, specialist/sub prime lenders or prime high street banks?

Banks stated that they feel impairments of up to 90 basis points were likely, some have revised this figure higher several times with NIB predicting impairment of upwards of 300 basis points. Sub-prime lenders on the other hand start off with predictions of high impairment and they price and gauge the risk accordingly from the outset. Given that starting point, could it be a case that Irish specialist lenders may come out the other side of the liquidity crisis with an overall book that fares proportionately on margins than other prime lenders?

To answer this question we must first consider margins, with many banks typical margin is from 1% to 1.5% on average, however, with many prime lenders this margin is  lower because of low margin trackers that were a point of heavy competition between 2004 and late 2007. Low margin trackers are loss making loans, some banks are said to up to 30% of loans that are loss makers, not because of the fact that people are defaulting but because of the low margins granted at the time the loan was made, which means that prime lenders are in a sticky situation because they are losing money even on good loans.

To clarify the reason many trackers are loss making, it is because the blended rates (that of depositors payable versus interest charged) combined with money market rates, drove the the price of funding higher than the actual interest rate being paid, the historically high interbank prices meant that assumptions made from the time of the introduction of the Euro were wrong: interbank funds would not always vary from 0.1-0.2% above the ECB.

Given that the worldwide financial crisis was initially termed the ‘Subprime Crisis’ it would be fair to wonder how specialist lenders are faring during this time. The answer, at least from an Irish perspective is that they are not doing very well at all, but this is as much a symptom of frozen interbank rates as anything else. Specialist lenders are not deposit takers and for that reason they do not have the benefit of a group of zero rated funds (funds on which they pay no interest to obtain).

This creates a unique situation, regular banks are getting hit by the Euribor because of low margins, specialist lenders were hit due to a lack of liquidity in the market, indeed, specialist lenders were feeling the pinch back in 07′, you would be forgiven, as a member of Joe Public if you thought that everything happening now really only kicked in after the summer.

Specialist lenders have the margin but not the money, prime lenders have the money (to a degree!) but not the margin. So now it comes down to impairment, sub-prime lending has stronger rules on impairment risk analysis and is priced with that in mind, for that reason their book tends to produce great margin on the loans that are paying. Prime lenders on the other hand have many loans with low margins and even one going bad can have a larger than expected knock on effect.

That may be why lenders like NIB are predicting impairments so much higher than some other lenders, if you are already losing on low margin tracker mortgages then default in a single loan, when combined with other loans that are already negative margin it creates the same effect as three or four loans going bad even though only one has.

Sub-prime lenders have also taken a more market based approach to their number of staff and operations, they have shed the required numbers and cut costs to the bone, they also have strong credit control teams that are already veterans of the collections process while many prime lenders are turning to broker consultants to take up extra positions in collections.

It could be a case that specialist lenders do much better than many are giving them credit for (in this article it is focused only on the Irish Market), their high margins and expectation of impairment could have them adequately prepared for the storm that many prime lenders only seemed to realise was happening in the latter half of 08′.

As we await what is being described as a ’savage’ budget, it is important to remember some of the ideas being thrown about may appeal prima facie. One disappointing suggestion I heard today was a call for tax bands of 50%
(this came from an economics professor too!). In this blog we have said for some time that there are only two solutions to the deficit, firstly taxes must go up, secondly we have to stop spending. However, there is a point at which higher taxation actually reduces the tax take (more on this later in the article)

One thing that we need, in light of what will likely be testing times is to consider the impact of tax changes and also the need for a simplified bankruptcy system. There are currently (so we hear) thousands of well to do ‘non-dom’s’ in the UK who are planning to leave because of changes to the tax system. Ireland is a small country relative to Europe, so what could we do in order to make our shores more attractive to the superclass who, despite all of the tax breaks, are still huge contributors?

We could consider changes that mean that income earned in other jurisdictions is not taxed for non-domiciled people living in Ireland, obviously rich people living here spend money and that brings in a significant amount of economic activity as they purchase goods and services within the country they inhabit, this would mean we get the benefit of their wealth (likely local investment in property etc. ensues) and even though the tax on their foreign earnings would not enter our tax system it is better than not having them here at all! Obviously there would have to be some condition that at least part of their income is derived here and taxed appropriately.

Has nobody ever noticed that ‘recessions’ don’t affect Switzerland, Monaco, Lichenstein and other havens in the same way that they get the rest of us? If we had a world class finance centre -and we do, its the IFSC- and world class education and finance professionals -this can be achieved- then there is nothing stopping Ireland from doing many of the jobs currently performed in the City. Currently we only get the scrappings of the table in the form of administrative operations.

Bankruptcy is another thing that needs to be reviewed, Ireland’s laws are harsh and borderline cruel, risk taking entrepreneurs represent the enterprise function in this country which is actually the largest employer. While being mindful of large multi-nationals the Government have failed time after time to seek out more positive conditions for enterprise, currently the incentives for business creation are insufficient, the problem is that we have a nation of gifted and skilled workers who could innovate into new markets if there was conditions which met two simple criteria. Firstly that starting a company doesn’t mean facing unrealistic financial hardship, and secondly that if the firm does go bankrupt that the process is simple (so they are not also burdened with massive legal bills) and fast (so they can recoup and try again).

Part of what makes Americans so competitive is their view of business failure, the expression ‘fail your way to success‘ originated there and often if you haven’t fallen at least once in the past you are considered ‘green’. Failure brings lessons, and those lessons create better business practice and efficiency - one of the reasons that capitalism must have failure embedded in its ethos as not being the ultimate evil, instead, meddling with failure such as governments are want to do so rapidly is the greater mischief.

Immigration should be reviewed (not in the budget but in general terms), because if you are a doctor from a non-EU country it is harder to get into this country and live than it is for a hardened criminal from Central Europe, something in this equation doesn’t make sense.

Taxation should also be carefully considered, I would urge readers to examine the Laffer Curve which is a theory well known but made popular by Arthur Laffer (economic adviser to Ronald Reagan). It shows that the overall tax take can actually decrease when taxes are raised beyond a certain point, taxation can reach a position where it becomes more viable to make every effort at avoidance and even evasion in certain circumstances. In fact, when understood and effectively used the Laffer Curve can cause unexected economic uplift.

Desperate times call for desperate measures, and there is nobody saying that responsible public spending is a bad thing, it is the irresponsible spending, or the prospects of such that concern the financial community the most, and at a time like this easy answers are not necessarily the wisest.

This post is a brief account of the residential mortgage providers in the Irish mortgage market, a brief look at who they are and what kind of lending they are involved in. Many people have no idea who is who, or who owns who so this should help to clarify some of that. Of course, as a broker we can help guide you through the myriad of lenders and options, but even our expertise is not an adequate replacement

The list of lenders in residential mortgages are (in no particular order)

1. IIB Homeloans
2. Haven
3. PTsb
4. First Active
5. EBS
6. Irish Nationwide
7. ACC Bank
8. Bank of Ireland
9. Springboard
10. Start Mortgages
11. Nua Homeloans
12. GE Money
13. Leeds Building Society
14. Bank of Scotland
15. ICS
16. NIB
17. Ulsterbank
18. AIB

Who they are and what kind of lending do they do?

1. IIB Homeloans: This is ‘Irish Intercontinental Bank’ and they were once owned by Irish Life, they then got bought out by KBC. So who owns IIB now? KBC do, they are a good firm and KBC have had virtually no exposure to sub-prime loans, IIB did have a firm called ‘Stepstone‘ who were a subprime lender but they were closed shortly after starting. IIB are 95% broker channel with a small direct sales side. This means that almost all of their business is placed via brokers. The important thing to realise here is that they have about 12.5% of the residential mortgage market, if you didn’t use a broker you likely didn’t use them because they mostly deal only with broker loans. It re-enforces our belief that you have to talk to a broker to get independent advice.

2. Haven Mortgages: Haven is a broker only channel that is a subsidiary of the EBS, it was launched in 2007 and it is quickly gaining market share, their proposition is not identical to the EBS and access to their loans is exclusively through brokers. Haven is based away from the EBS (it’s located on Amien’s St.) and it operates as a seperate entity. They are quickly proving to be an innovative leader and the additional competition within the market is welcome. Currently however they have been raising their rates because (as is the case with most lenders) of the interbank markets, in addition, they source their money via the EBS so one concern for a broker only channel is whether or not they will be able to remain competitive with the EBS.

3. PTsb/Permanent TSB: This banks was formed when the building society Irish Permanent amalgamated with TSB (Trustee Savings Bank) later this new institution merged with Irish Life to become IL&P (Irish Life & Permanent), so PTsb is the banking wing of the Irish Life group. They are a massive lender who command almost a quarter of the residential mortgage market. They have been aided in their growth by strong support from the intermediary channel upon which they rely heavily. The share price of the Irish Life & Permanent group has been highlighted recently for poor performance but the actual company itself remains a market leader.

4. First Active: This was initially a building society that later got listed as a public company in 1998 and was later bought by RBS (Royal Bank of Scotland) in 2004. First Active had a strong history of home loans and although they have banking and savings facilities their penetration in that market is minimal. Their current host of rates are considered to be amongst the most expensive in the market and they have been the first to re-introduce certain types of mortgage fees.

5. EBS (Educational Building Society): This is Ireland largest building society, having said that building societies are thin on the ground as most have graduated up to fully fledged banks. They have branches and franchises, the franchises look and feel like any other EBS but they are owned by a franchisee. As the EBS is not a bank it doesn’t offer current accounts, but it does have ATM’s via AIB and credit cards via MBNA. Their investments are tied to Irish Life. In 2007 they launched a broker only channel called ‘Haven’. Traditionally EBS were known as a ‘first time buyers’ bank however, they have left that moniker behind and are known

6. Irish Nationwide Building Society: This firm is one of the smaller players on the market, historically their rates are also amongst the highest in the market, for this reason they are often seen as a lender of last resort in the mortgage market. Having said that, Irish Nationwide continue to remain profitable in the market and they seem to have escaped the sub-prime debacle, they also have a range of attractive deposit products.

7. ACC Bank (Agricultural Credit Corporation): Is primarily a commercial bank which focuses on agriculture and SME firms, typically when you wanted to borrow to buy land for farming ACC were the only lender who would look at this, they hold a strong niche in that respect. In 2002 Rabobank bought ACC and they are now a fully owned subsidiary. There are about 40 branches of ACC bank in Ireland, the firms focus going forward is to move into the business banking sector. If RaboBank decide to pursue a residential lending arm to their business then it is likely that ACC will be the conduit for this.

8. Bank of Ireland: BOI shares have taken one of the most severe hits in recent months, formed in 1783 Bank of Ireland is the oldest bank in Ireland. Bank of Ireland offer a full range of financial services, from credit cards to mortgages, they have an extensive branch system and they are a major lender in the residential market and they have exceptional market share in the commercial property section. Bank of Ireland are not generally dealt with via brokers because they never developed that channel fully, instead they worked on developing their subsidiary ICS into a broker channel for the group.

9. Springboard Mortgages: This was a joint venture by Merrill Lynch and PTsb which focuses on specialist or sub-prime loans. The Irish market saw a swath of entrants into the lending market from 2004 including firms such as Fresh (no longer operating) and Stepstone (no longer operating). Springboard is almost exclusively a broker only channel. Merrill Lynch removed themselves from the JV in mid 2008 and Springboard is now a fully owned subsidiary of PTsb. The exact details of the move were not disclosed. Springboard continue to offer specialist loans and they are amongst the remaining four players in the specialist market.

10. Start Mortgages: Despite being the second entrant to the market Start Mortgages actually took the largest market share in Ireland after commencing operations here, at the time they arrived the only lender offering specialist loans was GE. Start were owned by Kensington in the UK and later the group was sold to Investec. Start is an innovative lender and they championed many concepts in the Irish mortgage market, however, as is the case with all lenders, the crunch has resulted in a slowdown in lending levels.

11. Nua Homeloans: This is one of the newest players on the Irish mortgage market and they are also owned by Investec. Investec now have two players in the Irish subprime market so there is a belief among many that we will see either a sale of one of the banks or perhaps a consolidation or rebranding of both firms into one. In the interim Nua are gaining market share, they have embraced an electronic platform which makes dealing with them exceptionally easy, they are amongst the front runners in the Irish market to have achieved this.

12. GE Money: GE were the original sub-prime lender in Ireland, they entered the market back in 2003 with their first proposition. At the time they were basically consolidating ‘near prime’ loans and for this reason they left the niche open which gave Start Mortgages the opportunity they took when they entered the market. GE have since made aggressive inroads into the market on several fronts from mortgages for people with bad debt to personal loans and car finance (they had been in personal loans and finance all along). GE is one of the worlds largest companies and they are active in almost ever facet of business known.

13. Leeds Building Society: Leeds is the newest entrant on the market and they are a British Building Society (7th largest in the UK) and they came to market with a tracker/LTV proposal financing properties with a ‘one size fits all’ tracker for properties of 80% or less LTV. They operate on multiples which limits their ability to lend to many highly geared Irish properties however, their market share was impressive in their first two years of operation and they are a welcome competitor to the market. Their rates are hugely attractive at present as they offer trackers at ECB + 1.45% in a market where everybody else seems to be pushing for margins of 2%.

14. Bank of Scotland Ireland (BOSI): This is a firm that was brought to Ireland by brokers, they introduced tracker mortgages, and in essence it was BOSI who shook the market up, most of the public don’t really think about the fact that BOSI was a broker only bank that introduced Trackers to the Irish market, trackers are the most transparent and best value long term loans available, other banks soon followed suit and copied the BOSI proposal. Recently the firm has had difficulties because their mother company HBOS is having issues, they also started a retail only channel in Ireland Halifax, the move to retail has not proved as successful as they had hoped for and brokerage still accounts for most of their business.

15. ICS (Irish Civil Service) Building Society: This was once a state owned lender exclusively for use by civil servants, it was later sold to Bank of Ireland and it is a wholly owned subsidiary, they distribute mortgages almost exclusively through brokers and they tend to have a product offering that is slightly better (historically) than BOI, their direct sales branches are branded as ‘The Mortgage Store’ however, clients entering their premises can only be offered an ICS loan, on the life front they would be able to broker different products from institutions such as New Ireland or Eagle Star.

16. National Irish Bank (NIB): This is the southern version of ‘Northern Bank’ (of robbery fame). They were bought by Danske Bank in 2004 from National Australia Bank who had bought NIB in 1987. NIB are best known for polar opposite events, on one hand (long ago) they had helped clients open accounts under false names and evade tax, they overcharged customers, their ex-head of financial advice is barred from being a company director. However under Danske they have become known for positive reasons, namely their ‘LTV tracker’ which has been and remains one of the best value loans on the market. Mind you, their variable rate is amongst the worst in the market, but for the client who knows what they want and how to spot value their LTV tracker is unmatched. In a nutshell NIB can’t be touched by any other lender when it comes to trackers, the main gripe brokers have with them is that we can’t place loans with them!

17. Ulsterbank: This bank is owned by RBS and like its sister firm First Active their rates are amongst the most expensive in the market. They had a broker proposition and then in 2008 with minimal notification they informed the market (by email) that they would pursue a ‘branch only’ model, they had a competitive offering from 2004-2006 but since that time their loans have not been popular within the intermediary channel.

18. Allied Irish Bank (AIB): AIB has the largest branch network in the country, only BOI is near them, they are one of the ‘Big Four’ in banking in Ireland. They offer insurances via Ark Life and they are involved in every major facet of banking, from commercial lending to residential. On the residential front their primary distribution is via their branches, AIB do deal with brokers, it used to be via a channel called AIF (Allied Irish Finance & Leasing) but this was merged with the main group in 2005. The bank was only formed in 1966 by the purchase and merger of three other banks. Poland is a large area of AIB’s operations in the new millennium. Their lending policy is considered by many to be ‘profile’ based rather than strictly ‘underwriting’ based, and for that reason they are not the lender of choice for many cases, but for the type of business they do want they are a lender who demonstrates total flexibility and service.

That is a basic run down of the mortgage providers in the Irish market. No broker can really claim to have agencies with ‘all of them’ for residential lending. If you have any questions about this or any of the posts you see here be sure to call us! 01 6790990

There is so much gloom and doom in the press recently that only those with the greatest fortitude seem to find any cause for happiness. Personally I have been talked down off the roof a few times already (philosophically not in reality). And hardly a day passes where the Government don’t give us some negative outlook news. If you are into sadomasochism there is a new way to get your kicks, it’s called the ISEQ and if you are truly sick you can always watch property prices.

However, today’s article is going to focus on the good life and the good things that are coming out of the property bubble and that will continue to serve us all better in the future (catastrophic losses aside)

1. The Bubble performed where the Government and Good Intentions failed: The Government and all of the good intentions in the world were never able to gentrify the north inner city (my former home), but the property bubble did a GREAT job! Walking down Sean McDermott Street or Gardiner Street after dark is no longer considered an extreme sport.

The North Inner City is not a totally regenerated area, there are still social issues and a good concentration of people who are in the ‘have not’ section of society, however, the property bubble did make the place better in so many ways, it has brought in many new buildings and apartment blocks, down by the Five Lamps there are coffee shops, offices, retail areas and new apartments, this was unthinkable even a decade ago. And in acknowledgement of investors, it was private sector money that achieved it all, public money had little or nothing to do with the city’s regeneration. Granted the Section 23 allowance helped a great deal but an incentive doesn’t mean that people just jump in hell for leather, it still requires private class money to be earned and invested.

2. We have much better market tools: look at all of the market resource tools that have sprouted up, some are commercial myhome.ie and daft.ie but they can have research tools attached to them too www.irishpropertywatch.com is a prime example of this as is daftwatch both of which use the Daft site to track rises and falls in the wider market (albeit that since their inception the trend is down and the creators are bears who made the sites for that exact reason). However, we cannot deny the excellent addition to the market that these sites have given us, fast information, accurately, at our fingertips in seconds! Hats off to all of them.

3. Distribution of the population: Decentralisation was/is a joke, but the house price bubble did a great job of getting people out of the city. Drogheda, Navan, Trim, and many other regional towns became rejuvenated, the locals there might curse it as a Jackeen Invasion but the fact is that these areas also experienced a huge infrastructural uplift due to the new inhabitants, and their existing property would have had a handsome increase in their property values to make up for it. Even though prices could fall 40%+ that would still be a better return than the return they would have gotten if property had grown the way it does traditionally (consistently mediocre performance).

We saw many people opting to get bigger houses for less in far flung areas but that has also had a ‘balancing’ effect on the nation, and not everybody there was in commuter hell, many were self employed and set up shop in their new home areas thus bringing more jobs to these areas and creating local economy which in turn supports local council via taxes etc. and the overall effect is that the country as a whole is better off in terms of infrastructure and the movement of at least some labour out of the capital and main cities (although Lietrim will forever be in a depression it seems, all nine of the people still living there have told me that)

4. Upgrade of the countries housing stock: We need not think too far back in time to remember the tenement stock of property prevailing through many towns [this point does tie in a bit with point 1]. The housing stock of the whole country, and in particular inner cities and regional towns has been upgraded. The average house on the market today represents a quantum leap forward compared to what was on offer 20 years ago. You can rant about them being shoe-boxes, piled up on each other, and built with materials that won’t last a century and to this I will always say ‘it still beats a tenement’ and that is indefatigable.

5. Sophistication of Consumers: Who doesn’t know at least a little about ‘interest rates’ today? A decade ago the only people watching interest rates were bond market men and City of London folks. Today’s consumer knows much more about bank charges, rates, APR and many other things that previous generations lacked. There is a part of me that thinks the intermediary channel is going to decline because of this, if people know all they need to about finance it takes away from the knowledge power a broker has, although I think there will always be a place for brokers, I don’t accept that we will be as numerous as we are today in the future.

6. Excess capacity creates prices wars: All of this extra property will not be burned or smashed down, it will be marked down appropriately and sold on for what may be catastrophic loss to the seller but what will be a long term good buy for the purchaser, if we accept that those who can handle loss better are the investors (if not then they shouldn’t be investing in certain asset types) then we must believe that they will be able to recover, in fact, they must recover because it is investors and the private sector that will eventually drive the economy to any meaningful recovery. In the meantime we may have some ghost estates, but if the price gets low enough somebody will buy them.

7. Creation of a Property Regulator: We finally got a huge area that has witnessed many incidences of abuse over the years regulated. This means that there is a point at which the ‘buck stops’ and it is the Property Regulator. How they actually perform is another matter but formalising some of the transparency and enforcing the qualification requirements of people in the property business is a great thing and long overdue. I recall one instance where a builder took back contracts and sold them on for 30k more each, total abuse and only capable because of a lack of control. We had an estate agent ask for ‘proof of a loan’ from a client of ours and not from another, we knew it was because the client was African and thus complained to the IAVI, who in turn did nothing, and in fact they defended the idea. So bye bye abuse, hello regulation! If this is done right it will ensure a proper and equitable system can exist on both sides of the equation, for professional and consumer.

8. Education about asset classes: In years gone by people were not financially astute in general, on that point, I believe that the single greatest feat in the area of education in this country and many others is that of ‘financial education’. For that reason I take a pro-active approach and will be running courses in VEC’s about money, and I also hope to get involved with larger groups to establish a ‘money curriculum’ that might one day end up in schools, most importantly into inner city schools where breaking the cyclic generation pattern of poverty is most likely to succeed. Today people know more about stocks, property, rates and commodities than they did in the past, and talks of ‘oil prices’ don’t focus on what you pay at the pump only, people talk about it per barrel, that means we are starting to use investor words in appropriate context. Onwards and upwards!

So while many are thinking of only the glum things, I’m concentrating on the bright side of things, it’s especially easy to lose yourself to gloom and doom in a market like this, but anybody out there is not going through this alone, the whole country is feeling it, so I would hope that there are others who can see some of the good to have come from the property asset bubble, and this by no means indicates the game is over, property will still be an asset class as long as there is freehold and people with any money, we just have to acknowledge that it won’t be the same during the next ten years as it was during the last ten years.

Don’t lament just yet, after all what goes up must come down, and by extension what goes down should one day, come back up, and if it doesn’t just be glad that it did, because it made today’s Ireland better than yesterdays.

Just a quick note to readers, Irish Mortgage Brokers is an intermediary, we go between you and the bank to arrange finance. You can go direct yourself and get the same mortgage, however, over half of the market uses and intermediary to arrange their finance, this is normally because they don’t really how to get a mortgage in Ireland or because they find using a broker easier than dealing with the job directly. And some people just prefer the personal touch of a broker over that of call centres and branches.

If you want to find the best Irish mortgage rates you can do so in a simple phone call or online application, click on the ‘home’ button above and apply over the web or call us on 01 6790990 and an agent will be able to assist you. The people we tend to work with are clients looking for a First Time mortgage in Ireland, people who want to find out how to remortgage a property, commercial lending, and trading up/down.

We are regulated by the Financial Regulator as a mortgage intermediary and also as a multi-agency intermediary, so we can advise you on mortgages and investment products such as pensions, PRSA’s, bonds, and life assurance.

If you want to learn more about tracker mortgages we can let you know about the offers in the market, and we keep people up to date when we get an ECB rate increase or decrease. We believe that some time soon the banks will rationalise their market proposal and move to Euribor mortgages, or Euribor tracker loans. Brokers are not the solution for everybody, however, our clients come back time after time so that is testament in itself. We hope you enjoy the serious articles we normally focus on in our blog, this is just a quick note to tell you something about ourselves!