TodayFM Last Word features Irish Mortgage Brokers and Joan Burton to discuss bank taxation

We took part in a conversation with Matt Cooper on The Last Word about bank taxation with Joan Burton from the Labour Party. We tried to make the point that short term thinking about bank taxation is a mistake, that we are better off getting the maximum amount of money back to the state rather than losing bank value in order to score a short term political win.

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Bank of Ireland restructures their equity

Over the weekend, Bank of Ireland went through some major changes to their structure.

This is needed to avoid a future bail out. Fitch, one of the world’s top three credit ratings firm, said the Irish banking system had around 15 percent of non-performing loans. This is about three times the average amount of the European Union countries.

Despite this, Fitch still gave Ireland a rating of A because of the potential economic growth. They gave Ireland this rating on Friday because the economy is supposed to grow 3.5 percent this year which makes Ireland one of the top growers from the EU area for the third consecutive year.

Even with this high rating, Fitch warns Irish banks that this massive amount of problem loans is weighing the country’s rating down.

Bank of Ireland responds by restructuring their equity to protect Ireland if a crisis occurs. This new system protects the Irish bank accounts and minimizes taxpayer bailout.

How it works?

Bank of Ireland will issue two types of equity: senior and junior. This puts the liability of crisis to …

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Cash back deals: are banks manipulating borrowers?

The Competition and Consumer Protection Commission (CCPC) warned lenders last month about their use of cashback deals and loyalty discounts. The commission believes that such incentives may be detrimental to consumers and may reflect unhealthy competition in the mortgage market.

 

Cash back deals have become more and more common in the market in recent years. These deals work by giving borrowers a certain percentage of their total mortgage amount back at the start of their loan, and they mostly target first time buyers who may need the extra money on hand to furnish their homes or to tide them through a tough transitional time in life.

 

A quick look around the market reveals that major lenders, such as AIB, Ulster Bank, Bank of Ireland, EBS and KBC, all have similar cash back deals, mostly ranging from 2-3% or €1500-€2000. The catch on these loans however, is that interest rates on them are often higher than the average on traditional loans. This means that over the term of the loan, extra interest paid  may turn out to be much …

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Mortgage market update: lenders have large margins

Dan White authored a piece published in the Irish Independent on June 18 titled: Are greedy mortgage lenders about to see enormous margins squeezed? The article analyses the current mortgage market and concludes that limited competition between lenders is a source of high interest rates in the market and the consequently high margins and profits achieved by lenders. White takes note of current changes in bank’s interest rates and of a paper published by the Competition and Consumer Protection Commission to predict the future of interest rates and margins in the mortgage market.

 

The author cites a paper published by The Competition and Consumer Protection Commission stating that the Irish mortgage market is “characterised by a high concentration of a small number of lenders, limited competition between these lenders and low levels of entry by new players”. This is in part due to the fact that many foreign lenders left the Irish market after the crash. Because of the limited competition, Irish banks had free range to dramatically increase their net …

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Moody’s bumps up ratings on Irish banks

Credit rating agency Moody’s has upgraded the long term debt and deposit ratings of Irish Banks: Bank of Ireland (BOI) and Allied Irish Banks (AIB). It also upgraded each bank’s baseline credit assessment by one level. Irakli Pipia, Vice President-Senior Credit Officer at AIB said “the rating upgrades reflect a range of positive factors, including further reduction in non-preforming loans, improved capital ratios and achievement of stable core profitability”.

 

From the end of 2015 to the end of 2016, BOI’s problem loan ratio fell from 11% to 7.9% and the  loan to deposit ratio fell from 112% to 108%, signalling improvements in asset quality and a better funding ratio. The bank’s BAC was upgraded from ba1 to baa3, the 10th tier of Moody’s rating scale.

 

Moody’s also bumped its baselines credit assessment of AIB by one tier from ba1 to ba2. It cites a reduction in the percentage of the bank’s problem loans from 18.6% last year to 14% at the end of 2016 and the bank’s more liquid position.

 

Various other ratings were also affected in …

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AIB returns to stock market

Finance minister Michael Noonan officially announced Tuesday night government plans to sell a 25% stake in AIB, returning part of the bank into private hands. This marks AIB’s dramatic return to the London Stock exchange since it was nationalized almost 7 years ago during the last financial crisis.

Currently 99.9% government owned, the sale of AIB shares will likely be the largest stock market listing of 2017. Analysts estimate that the sale of shares will raise more than €3 billion for the government, contributing to AIB’s slow and steady return of the €20.8 billion of bailout loans it received from 2009 to 2011.

AIB is Ireland’s biggest lender, and since it’s nationalization, has worked hard to renew its image, slashing the amount of bad loans from 29 billion to 8.6 billion. With that and already €6.8 billion of taxpayers’ money returned, AIB CEO Mr. Bernard Byrne hopes the upcoming sale of shares will continue the bank’s process of recovery and reaffirms investor confidence.

Although …

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Two identical first time buyers walk into a bar, one qualifies, the other doesn’t

The Central Bank rules on curtailing mortgage lending have had an interesting effect, first is that we are seeing more loans draw down that might not have because people are bringing forward consumption due to the fact they won’t qualify for the same amount again in the future. This is literally the opposite of the intended effect.

Second is that it’s causing chaos for prospective buyers who may hold an exemption or need an exemption because there are quarterly reporting rules that mean banks can’t offer a new loan until they know if an old one will be drawn or become an NTU (not taken up).

Perhaps the easiest thing to do is explain it, currently you can’t get an exemption from Ulsterbank or AIB/EBS/Haven or BOI, but you can from PTsb and KBC. The banks that can’t give you one (and remember it’s only one of LTV or LTI not both) are hogtied because they have given the limit of exemptions (c. 15%-20% of lending) already in loan offers and they have to estimate both the annual and quarterly …

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Talking Money – Switch your mortgage to save

This week on ‘Talking Money’ Karl Deeter and Jill Kerby were discussing ‘switching’ with Cormac on RTE’s Drivetime. It was coincidental that many of the points we made were reinforced by the Central Bank findings this week on mortgage switching on points such as assertive customer behaviour being important and not allowing inertia to hold people back.

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Newstalk: Pat Kenny Show on variable rates

We were asked to speak with Pat Kenny today about variable rates and the government plan to intervene to make banks drop them. This was, after considering various pieces of evidence shown to be a deeply political rather than pragmatic move. We also demonstrated that there are documents which the Minister for Finance had drafted up with the banks specifically stating that he would not intervene on matters of pricing, the recent round of ‘meetings’ is in direct contravention of that.

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RTE Radio 1: Talking Money with Karl Deeter & Jill Kerby

On talking Money on the 24th of November we looked at the issue of mortgage arrears and the role of the Insolvency Service in terms of finding ways to get solutions with guaranteed end dates. There is a mismatch between the goal of banks and borrowers and it is resulting in solutions that often don’t work.

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