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.
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 …
We were asked to take part in a studio debate (at the end of the clip) on Standard Variable Rates, why they are so high and what we should do to bring them down. We believe they are already headed down and that this is mainly a straw-man issue, rates are going to come down in spite of anything anybody does.
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 …
There has been an absence of competition in the switching market for some time. AIB don’t even do them while others try to avoid switcher loans. PTsb have been in that space for some time but were largely unchallenged except by (to a lesser extent) Ulsterbank.
Which is why it’s nice to see KBC come out with a product for people who want to switch to them. Naturally the best prices are at low loan to values, these types of loans have obvious advantages to banks in terms of the condition of their loan book, but it’s good to see this as moderating credit conditions have to start somewhere.