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.
In the ongoing variable rates pricing fracas there are many points being overlooked. The first is why our mortgage rates are higher than other European countries, but we should just ignore that – at least to stay popular.
We’ll say that the government/Central Bank pressure works and banks drop their rates, what next?
We might get around to the greater number of people under price pressure for housing (the renters), but that’s unlikely, instead we’ll inadvertently drive up house prices a little more by making credit more easily available.
Because the lower the variable rate the lower the stress test. Lower rates equals more credit, it’s a fact of life in lending.
You heard it here first. The lower variable rates go the more it frees up a persons lending capability. We have covered the way the Central Bank lending rules won’t work to the point of being annoying (and we weren’t alone, the ESRI and …
The ongoing meme of standard variable rates being a ‘rip off’ has recently lead to a new bill being proposed by Senator Feargal Quinn. This is the most recent brainwave since the ‘tax banks to make them cut rates‘ idea.
Once again we see the politicisation of credit pricing which is avoiding many of the contingent facts on the topic which analytically is an error.
My old statistics lecturer used to say ‘comparing apples to oranges is banana’s’ and she was right, to compare two things they need more ‘likeness’ than the fact that both things happen to exist.
Here is a small list of things that occur in other jurisdictions that aren’t being mentioned.
1. Arrangement fees: Many jurisdictions (even around Europe) have arrangement fees factored into the loan, often this is 1% that the borrower pays the financial institution for setting the loan up. This reduces the need to amortize the cost of procurement …
On talking money we looked at mortgage rates, where they are, where they are headed and what the best choice might be for people who are trying to decide what is best for their personal situation.
It’s a tricky question, rates can and do go up and down, but we believe the long term trend is for rates to go lower, in fact, that trend has already been occurring and there isn’t anything that seems in a position to stop it from happening. This is good news for borrowers (not so good for deposit savers!).
We have commented several times since last year that the trend for mortgage rates in 2015 will be to see them drop. With spreads of c. 300bp’s on lending it makes it one of the reliably profitable sectors of banking given the stringent underwriting being applied.
With the Central Bank looking to curtail first time buyers but doing nothing about incumbent borrowers getting restricted it means that they have directed the market towards refinancing.
This is because one of the niches left on the table is that of existing variable rate holders, which banks will now try to tempt away from one another in an effort to grow market share.
There are many who cannot take part and below is a list of the mortgage holders who won’t benefit.
Those in negative equity, they are going to be stuck when it comes to refinance, they can trade up with a negative equity mortgage but they won’t be able to ‘switch’. Those on fixed rates which accounts for in the region of 50,000 mortgage accounts, they face break penalties, and only …
For a while we have seen competition starting to heat up a little in the mortgage market. Several moves recently have started to demonstrate this further, Bank of Ireland have their ‘pay you to borrow from us’ campaign, KBC had a ‘pay you to switch’ along with rates that beat everybody else.
Now they (KBC) have launched a quick approval process which aims to cut down the time it takes to get approved which at it’s worst was taking up to four weeks with some banks. This is only for an approval in principle, which isn’t worth much (not like a loan offer is) but it is the first step in the mortgage process in terms of getting meaningful feedback from a lender.
They have a first time buyer 1yr fixed rate of 3.5%, short term fixed rates are where banks tend to go to attract business as the first year costs are what many buyers are fixated on rightly or wrongly.
There is one bank rumoured to be considering a return to brokerage, another who shut operations considering re-opening …
Today Ivan Yates spoke to Karl Deeter about the PTsb rate increase. There were several points to consider surrounding this and Ivan touched on perhaps the most important which is about credit provision in general.
We were asked about the likelihood of banks passing on yesterdays rate cut to standard variable rate mortgage holders, we don’t think they will.
We were delighted to take part in the Irish Independents first property video blog where we answered questions and spoke about the property market in general.
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 …