Are capital requirements for Irish banks too high?

In the aftermath of the financial crash of 2008, the European debt crisis, and the Irish banking crisis, in 2014 regulations were passed aimed at promoting higher banking standards to prevent similar crises in the future.

The first of these rules states that all Irish banks have initial starting capital of at least €5 million; they must always be in excess of this amount. Further, lenders have claimed that they must hold up to three times the capital for mortgages relative to average requirements throughout the rest of the EU.

These regulations largely seem to have accomplished the job they were instated, with the Banking and Payments Federation Ireland (BPFI) stating that there has been an increase in high quality loans and a corresponding decrease in problem loans.

However, there has been criticism as of late for the continued implementation of these rules, and for the harsh conditions they impose on lenders. It is possible that borrowers are also adversely affected by extension. For instance, it is claimed by major Irish banks that the high capital requirements are …

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Types of mortgages and lending rules

Irish law has specialized sets of lending rules depending on the type of mortgage application. Types of applications are split into three different categories: first-time buyers, remortgaging or switching, and buy-to-let buyers. Depending on which of these categories an application falls under, different loan-to-value (LTV) and loan-to-income (LTI) limits will be used. The former refers to the minimum deposit a borrower must have on a home before getting a mortgage loan. The latter refers to the maximum amount of money borrowers can receive in relation to their yearly gross income; while this is normally capped at 3.5 times one’s income, lenders can provide additional allowances of varying amount depending on the type of application.

Firstly, there are first-time buyers. These applicants are those buying a house for the first time, so the deposit required by LTV limits is understandably less steep. They will need to have a minimum deposit of 10% of the home’s total value. For example, if the price of a home is listed as €250,000, a 10% deposit would amount to €25,000. Lenders are allowed to have …

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The legacy of the “Double Irish” loophole

The “Double Irish” was one of the most notorious tax loopholes, used by large firms for decades since the 1990s. It was base erosion and profit shifting (BEPS) method used by many notable entities, including but not limited to Apple, Google, Microsoft, and more. Though closed in 2014, the loophole remained open to firms already using it until 2020. Even since its closure, there are concerns that firms that had used it previously will just shift to using different methods. Overall, this and similar methods used have had a substantial impact on Ireland’s financial system and records, something that is still being addressed today.

The Double Irish was conducted via the following steps. First, a U.S. corporate entity would develop a product or software for a price, and then sell it to a wholly owned subsidiary in Bermuda. Next, the company in Bermuda would revalue it as an intangible asset of a far greater price, as Bermuda is tax free. The Bermuda subsidiary would then license it to another subsidiary in Ireland for the same price. Important to note is …

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Who is buying houses in Ireland for cash? A look at cash buyers in 2021

With fewer homes entering the housing market, and a large amount of demand that is being unmet due to that, the Irish government incentives like “Help to Buy” have only just started to affect rising forecasted housing prices in 2021. But even so, there has been little effect in the market by people that are known as “cash buyers”.

Cash Buyers may not be the people that first come to mind. They’re not exactly the people that pay upfront the entire mortgage, because let’s be realistic, who has ever done that? Cash buyers are investors, and their acquisitions are mostly funded by debt in terms of purchasing power. This is where they get the name “cash buyers” from. Despite the pandemic in 2020, these cash buyers were still highly active in the market. Statistics show that over 1.75 billion euro were invested by investors from European property firms like the LRC. While, it was still down from 2019 when it was pre-pandemic times, where the overall investment was 2.5 billion euro, there was still a significant amount of money being …

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The Last Word on TodayFM features Irish Mortgage Brokers, 30/04/2020

We were part of a discussion around Covid19 and mortgages on Matt Cooper’s ‘The Last Word’ show on Today FM yesterday. The other participant was Brian Hayes of the Banking and Payments Federation of Ireland.

For our part we were impressed with the fact that the banks have been able to do more than 2,000 mortgage restructures per working day since the pandemic driven mortgage breaks were announced. To put that in perspective, it took six years to do 100,000 restructures after the financial crisis. This time around that figure could be achieved in a little over two months, that is something to be commended.

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Remove the lending limits to aid economic recovery? They’re considering it in New Zealand.

The Royal Bank of New Zealand (their central bank) is considering the removal of the lending limits – similar to our own – because it’s a countercyclical tool that is no longer needed.

“More recently we have proposed removing mortgage loan-to-value ratio (LVR) restrictions, as this is a countercyclical tool and we have been able to consider lowering this now that the risks of excessive lending have subsided and banks can now lean into a recovery. This should also enable banks to support customer needs”

That spells it out fairly loud and clear, if the tool isn’t needed then why deploy it? At the moment we are seeing massive issues with sales due to banks restricting in order to comply with the lending rules, this is an unforeseen consequence that will damage certain borrowers who have entered into contracts in good faith.

It’s worth noting that we took our lead in part from New Zealand on the lending rules, our new Governor is from there and house prices in New Zealand are also high – …

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Help To Buy For First Time Buyers

The name provides a definition for itself. First time home buyers are people in the market buying a home for the first time. Compared to other home buyers, such as trader-up borrowers and mortgage switchers, first time buyers have different benefits and restrictions when borrowing than other borrowers. The Central Bank of Ireland requires a 10% down payment for first time buyers. Now, for first time buyers, a 45,000 euro down payment for a 450,000 euro home may be somewhat daunting. However, the Central Bank has offered assistance for their first time buyers to keep them in the market. The Central Bank offers a help to buy program. This benefit allows for first time buyers of new houses and apartments to take a 5% tax rebate off of properties less than 500,000 euros. In a recent case at Irish Mortgage Brokers, a married couple came looking for a mortgage on their first home. The couple did not have a home in mind at the time, but based on their income, the couple had roughly below 500k to spend. Both individuals …

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Tracker Mortgage Scandal

A tracker mortgage is a mortgage that has its rate tied to the European Central Bank rate. AIB and other banks looked to force people as many people as it could off of loss-making mortgages. After the market crash in 2008, it became expensive for many banks to borrow. The banks hurt themselves a lot with bad lending practices before the market crash. Once the market did crash, many of the mortgages were actually costing the banks money.

Instead of taking the financial burden, many of the banks looked to be sneaky. They looked to push people off of the mortgages in questionable ways.  The Irish Times estimate that scandal costs have surpassed 1.5 billion Euro.

What is even more crazy is that financial services knew about the banks being suspect. Many people went to court and lost. However, it is believed that many of the banks had a voice on these committees.

PTSB and Springboard Mortgages were the first two banks caught in the scandal. It is estimated that 1,400 people had their loans mismanaged by both companies. Some …

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Safety Nets for Consumers in Mortgage Arrears

According to The Central Bank of Ireland, at the end of June 2019, there were 723,280 private residential (PDH) mortgage accounts for principal dwellings held. Of this, 61,901 accounts still had outstanding payments, also referred to as being in arrears. as of June, there were a total of 61,901 total accounts in arrears. Within that, over 18,000 were within 90 days overdue, almost 5,000 were up to 180 days overdue and a staggering 27,792 accounts were over 720 days overdue. However, at the end of the quarter only 1,407 homes were repossessed. So what protections do homeowners have when they are in arrears? In Ireland there are many codes and acts that are specifically designed to protect the family home from repossession.

The main code that deals with family homes, is the Code of Conduct on Mortgage Arrears (CCMA) which was put into place in 2013. The code is issued by the Central bank and relates to customers in arrears and pre-arrears situation. It does not however deal with investment properties. This code requires mortgage lenders to apply the Mortgage …

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Mortgage Switching is More Common than Central Bank States

Competition between mortgage providers has increased dramatically over the past couple of years. People are switching more frequently than every before trying to find the best mortgage rate for themselves. Over the last three years, the percentage of mortgage holders prepared to switch providers has doubled according to a banking sector report. Additionally, these figures are higher than what the official figures from the Central Bank are. Also, the Irish Banking & Payments Federation (IBPF) marks the rate of switching at over 15% which compares to the slightly more than 1% rate that the Central Bank has pit forward.

The federation suggests that the much lower calculations from the Central Bank could have a negative effect on how willing consumers are to search around for value. The IBPF notes the difference in numbers is caused by the Central Bank using the number of mortgages being switched as a percentage of total outstanding private dwelling house credit. IBPF stated, “This gives rise to a figure of less than 1 per cent for the current level of mortgage-switching activity” and “Crucially, this …

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