Four channels, one show, different prices – lending looking up in 2013?

AIB currently have four lending channels, there is AIB direct (their branches), AIB Broker (via the Ballsbridge HQ), EBS (done through branches and administered via the AIB direct system) and finally Haven Mortgages (another broker channel currently still located in the old EBS offices on Burlington Road).

There are four channels all operating off of the same credit pricing and all with different rates! Meaning where you choose to apply will make a big difference, even though under the hood you are getting an identical product. This is a classic example of having a brand name product sold at one price then the ‘own brand’ which is made by the same people as the first one, put into a different package and sold at a different price.

At the moment Haven only lend up to 80% meaning you need a 20% deposit, EBS have gone up to 92% which matches them with AIB (direct and brokerage), so the next rational step is for Haven to go to 92% which we are tipped off will be happening in Q1 of 2013, …

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Mortgage to rent in as bad a shape as the mortgage market

I think Ciaran Lynch hit the nail on the head when he said the ‘mortgage to rent’ scheme risks ‘becoming a flop‘. The issue here comes down to the creditors treatment of borrowers.

We have already posted a letter from Pepper showing how they are willing to do write-downs for customers. This is there for anybody to see, it isn’t here-say or rumour. In that case the loans of GE Money (a sub-prime lender) were sold to another company at a big loss.

The buyer of the loan buys it for say, 36c on the Euro meaning a loan for €100,000 is purchased for €36,000. What happens next is that they write to the borrower and say ‘hey borrower, if you pay me €50,000 and make all of your payments then we’ll call it quits’.  Meaning the borrower gets a €50,000 debt write off for either paying their loan or selling up.

This is a strong incentive to do the right thing, and it …

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AIB tightening criteria? Are banks really lending?

In recent days the IBF came out with a very positive story about how mortgage lending has increased year on year for the first time since 2006, at the same time the Central Bank are saying that criteria is tightening and other research suggests that almost HALF of our residential market is transacted in cash!

This is a classic example of two stories that contradict each other, or at least that seem to do so. Can you have tightening criteria with more lending? Of course you can! Demand for mortgages is up year on year (in our brokerage taking gross leads as the figure) about 30% or more.

Banks are saying that they accept the vast majority of mortgage applications (c.62% is their estimate), and the likes of AIB are actually ahead of …

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The 3 tools in a bankers box.

Banks have three tools (and no, it isn’t the CEO, Chairperson and Secretary!) in their box for getting into good health:

1. Operational efficiency: translation – fire a lot of people, close branches, reduce company benefit schemes etc 2. Reduce deposit pricing: pay the people who deposit with you less 3. Increase margins: on mortgages, SME loans, and every manner of service for which you can get away with it.

Which is why the news that AIB want to increase prices comes as no surprise. The first two parts of the plan are already under way, they are closing nearly 70 branches of which 44 just shut two weeks ago. They are getting rid of 2,500 staff members, that’s the ‘operational efficiency’ leg of the journey.

The deposit pricing is lower now than it was last year and last year was lower than the previous year, currently they’ll pay 2% or less for any account with a meaningful amount (greater than €50,000). While they market attractive rates for the regular saver (above a certain amount you’ll often go to a …

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AIB debt writedowns? What does it mean?

The Irish Times carried an article that stated that AIB would write down some mortgage debt. What does this mean though and who will be the beneficiary?

To begin with, the write-downs should be no surprise, that is what the provisions AIB have been putting aside for several years are for, in fact, to date it’s almost like they weren’t playing fairly because they were booking provisions but not actually using them for what they were for.

Secondly, there are 33,000 AIB mortgages with problems, of these about 10,000 are ‘unsustainable’ and for those mortgages there will be losses booked – that is the ‘writedowns’ they are talking about in the main, but on the end of whatever solution comes out of if the person may not be the owner of the home.

Several solutions are things like ‘split mortgages’ which require no writedown, others will be ‘mortgage to rent’ which will, because in that process the ownership will change and that means crystallizing the loss. How many of the 10,000 will come out …

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Banks are lending (while standards tighten)

I often complain that banks are ‘not lending’, they say this isn’t true. The Central Bank then says that lending criteria is tightening (report here). This at first seems to support the first statement, but could it be that they are lending and reining in on underwriting criteria at the same time?

It could be, AIB stated that they wanted to lend €800m this year (that was said at the end of 2011 at an in house conference), they are on track to lend €1,050m which is about 25% higher than previously expected. Bank of Ireland/ICS are saying the same thing, at the same time, the main lenders have jacked up rates and made more conservative estimations of who does or doesn’t get loans.

With the fall out in lending from 06/07′ to now, it means that there are plenty of borrowers of a high quality who are seeking finance, when you raise interest rates the stress-testing gets harder to pass, so that cuts out a lot of borrowers, as …

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Best mortgage rates September 2012

Mortgage rates are constantly under review and even though we might be expecting an ECB rate cut this week to 0.5% (which will be a historic low) it is highly likely that rates will sit still or even rise. The conundrum for consumers is about the rate choice, banks have just upped rates prior to any rate cut and by doing this then not passing on a rate cut they actually increase their margin significantly.

The best mortgage rates at present are below:

<50% LTV: AIB 3.34% >80% LTV: AIB 3.79% 1yr fixed: AIB 4.15% 2yr fixed: BOI 4.49% 5yr fixed: PTsb 3.7%*

*The PTsb 5 year fixed rate is a good example of a pricing discrepancy that is related to the PTsb loan book, this rate is excellent, lower than the standard AIB variable and fixed for 5 years! The reason for this is that by lending on this type of property PTsb will increase their assets (to fix the loan to deposit ratio that is too high) quicker and in return they will give up some margin.

If …

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IBF Latest Lending figures – what does a ratio tell us?

Yesterday good news was spreading about a year on year increase in new mortgages for home-owners, I debated the topic on TodayFM with Pat Farrell from the IBF. Figures are tricky to do on radio so I figured I might write something today, but got a surprise before the chance came when I saw the Irish Times article on the topic.

It isn’t like the Irish Times to get it wrong (personally, I take whatever the write as a virtual equivalent to gospel), but they did, today’s article states that we saw the first rise in mortgage loan numbers (we didn’t), and

The number of new mortgage loans issued during the second quarter rose on a year-on-year basis, the first time this has happened since early 2006.” (this would imply that lending grew or was larger YoY, it wasn’t).

The IBF/PwC Mortgage Market Profile reveals that a total of 3,225 new mortgages to …

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AIB to increase rates, the official message

We have reviewed our Variable Home Mortgage interest rates which are currently the lowest in the market. Our current interest rates are unsustainable due to the fact the interest rates charged on mortgages do not cover the high cost of funding and the cost of servicing the accounts. Based on these considerations, AIB will increase the rate on all Variable Home Mortgage Interest rates by 0.50%, effective from the week of 3rd September 2012.

All impacted customers will be notified in writing week commencing 30th July 2012.  Letters will include the date from which the new rate will apply, details of the old and new rate and the revised repayment amount.

Summary of Variable Interest Rate Changes

Existing Residential Owner Occupier Standard Variable Rate will increase by 0.50 % from 3.00% to 3.50%

Loan to Value Variable Rates for Owner Occupiers will increase by 0.50%

Buy-to-Let Standard Variable Rate will increase by 0.50% from 3.95% to 4.45%

Tracker Mortgage Rates and Fixed Rate Mortgage interest rates remain unchanged

We will issue a revised rates matrix to reflect these changes prior …

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