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 …
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 …
Yesterday we were on the Sean O’Rourke show discussing variable rates on RTE Radio. We mentioned how doubling the ‘tax’ on banks won’t actually change anything. The mechanisms were briefly covered and we got a few emails asking for clarification so here it is.
The ‘levy’ was part of the Finance Act 2014 which imposed a new annual levy on financial institutions aiming to raise €150 million per annum for 3 years.
This sum is payable on October the 20th in each year (2014-2016) and it applies to a financial institution that is the holder of an Irish (or equivalent EU) banking licence or is an Irish (or equiv EU) building society that was obliged to pay DIRT – unless the amount required to pay in 2011 was not more than 100k.
The main outcry is centred on variable rates for primary home dwellers in particular. So how much of that debt is out there?
We know there are about 300,000 ‘loans’ but the quantum of debt is €39.638m which is about €3bn …
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.
If you weren’t in the industry since before 2008 you could be for thinking that we only see bad banking decisions and negativity on a one way journey through the crash.
Today though Ptsb came out with what we believe is a deeply pragmatic broker offering that is rooted in good ethics and common business sense.
The first thing is the return of the Service Level Agreements which have been largely absent in the market of late, given recent backlogs in many lenders this is a very positive development for both industry and clients of financial firms. It’s frustrating waiting weeks on end for a credit decision.
The other thing they have done is follow AIB’s lead by removing the cap on procurement fees. When we are brokering loans and do one (for instance) for €1,000,000 the maximum we can earn at present is €1,500 although this may take 40 hours of work to perform, plus costs, administration and all other fixed and variable overheads. It has been one of the key drivers of brokers out of …
In today’s Independent there is an article about Ray Grehan and his ‘flouting of planning laws’. Having been through the planning process a few times I can say that it is often a frustrating exercise in which you hold an asset (the site) but are directed regarding it’s use by a third party who has little to lose based upon their recommendations which often hinge upon opinion.
In Grehan’s case he flew in the face of the planners – something which is very common in one off housing (in fact, you’ll find that every profession involved in housing knows what you can and can’t get away with), with the usual follow up of ‘retention’ being the solution.
He did the same thing many others do, fight with the local council to get planning, then build something different and try to keep it. The ratio of retention granted to that of properties that are forced to get torn down to remain compliant? I don’t know the answer, what I do know of is a long …
If you go into arrears on your mortgage or you talk to your lender because you believe you are a ‘pre-arrears’ candidate then you will be asked to fill in a ‘Standard Financial Statement‘ or SFS which is part of the Mortgage Arrears Resolution Process (MARP) which started last year.
Engaging with the lender is a key tenet of this and filling in the SFS and liaising with the lender on aspects of it. The information in this is what will be used to negotiate the repayment that you will pay in cases where lifestyle adjustment does not allow you to make the full payment.
This is the usual update of rates available at the moment. As you’ll notice, AIB is the leader in almost every section. However, they are not necessarily lending to every client hoping to obtain finance with them – to know if they’ll be the lender of choice you need to construct the application in a manner that will ensure it shows the best aspects of the case to them.
There are lots of other lenders out there too (we deal with the pillar banks and many others as well), so looking at ‘best rate’ is perhaps different than ‘best attainable rate’.
Anyway, here is the list, if you ever want mortgage advice give us a call! 016790990
Best variable rate mortgage: AIB 3.24% (with one for 2.84% < 50% LTV)
Best 1yr fixed rate mortgage: AIB 4.15%
Best 2yr fixed rate mortgage: PTsb 3.1% < 50% LTV, otherwise AIB 4.65%
Best 3yr fixed rate mortgage: AIB 4.88%
Best 5yr fixed rate mortgage: PTsb 3.7% < 50% LTV, otherwise its AIB 5.35%
Best 10yr fixed rate mortgage: n/A 12/2011
Oh, one …