This is a very healthy sign for the mortgage market, and in our opinion it could mean that 2010 might mark the low point for credit that we have been watching out for.
In 2009 KBC under-lent, they had €1bn and didn’t lend out anywhere near that, they are also here to stay, and prior to the crisis they had about 1/8th of the market share. The fact that they are rolling out a higher loan to value is a very confident sign that
Banks have a few internal policy tools to control lending
1. Curtailing the amount of lending – we see that already, mortgage lending is about 85% down from the peak of 40bn p.a. , peak wasn’t exactly a gauge of normal, but half of that would be normal, and even on that basis it’s down 75% – that story still has to play out
2. Rate increases: this has the same effect as central bank rate increases, it reduces lending and everybody has increased their margins by at least 1% in the last year, you and me have covered this several times together before
3. The last thing is the LTV or ‘Loan to Value’, which is essentially saying how many euro a bank will lend per hundred of purchase price, in the past KBC would finance 80 euro for every 100 the borrower had to come up with the other 20, now they will lend 90 per hundred which is a confident sign – because when banks are concerned about an economy in decline they don’t make this kind of move, certainly the wouldn’t if they thought there was far more to go on the downside
This ends the duopoly of AIB and BOI – for over the last year they are basically the only two lenders, although EBS stayed in the game for a while, they had to cut back to 85% and AIB and BOI unfairly got €1bn each to lend to first time buyers specifically in 2009 – giving them an unfair advantage over other banks .
[don’t forget: they may not have had high rates for ftb’s but direct branch biz was kept alive that shouldn’t have been while un-bailed out rivals were forced to close branches and the ftb’s also bought associated product with high margin – banks focus continually on internal conversion rates – they make sure to keep you once they have you so it was in fact a huge market distortion to give the big two money for first time buyers].