AIB tightening criteria? Are banks really lending?

In recent days the IBF came out with a very positive story about how mortgage lending has increased year on year for the first time since 2006, at the same time the Central Bank are saying that criteria is tightening and other research suggests that almost HALF of our residential market is transacted in cash!

This is a classic example of two stories that contradict each other, or at least that seem to do so. Can you have tightening criteria with more lending? Of course you can! Demand for mortgages is up year on year (in our brokerage taking gross leads as the figure) about 30% or more.

Banks are saying that they accept the vast majority of mortgage applications (c.62% is their estimate), and the likes of AIB are actually ahead of …

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The 3 tools in a bankers box.

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 …

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Banks are lending (while standards tighten)

I often complain that banks are ‘not lending’, they say this isn’t true. The Central Bank then says that lending criteria is tightening (report here). This at first seems to support the first statement, but could it be that they are lending and reining in on underwriting criteria at the same time?

It could be, AIB stated that they wanted to lend €800m this year (that was said at the end of 2011 at an in house conference), they are on track to lend €1,050m which is about 25% higher than previously expected. Bank of Ireland/ICS are saying the same thing, at the same time, the main lenders have jacked up rates and made more conservative estimations of who does or doesn’t get loans.

With the fall out in lending from 06/07′ to now, it means that there are plenty of borrowers of a high quality who are seeking finance, when you raise interest rates the stress-testing gets harder to pass, so that cuts out a lot of borrowers, as …

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IBF Latest Lending figures – what does a ratio tell us?

Yesterday good news was spreading about a year on year increase in new mortgages for home-owners, I debated the topic on TodayFM with Pat Farrell from the IBF. Figures are tricky to do on radio so I figured I might write something today, but got a surprise before the chance came when I saw the Irish Times article on the topic.

It isn’t like the Irish Times to get it wrong (personally, I take whatever the write as a virtual equivalent to gospel), but they did, today’s article states that we saw the first rise in mortgage loan numbers (we didn’t), and

The number of new mortgage loans issued during the second quarter rose on a year-on-year basis, the first time this has happened since early 2006.” (this would imply that lending grew or was larger YoY, it wasn’t).

The IBF/PwC Mortgage Market Profile reveals that a total of 3,225 new mortgages to …

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AIB to increase rates, the official message

We have reviewed our Variable Home Mortgage interest rates which are currently the lowest in the market. Our current interest rates are unsustainable due to the fact the interest rates charged on mortgages do not cover the high cost of funding and the cost of servicing the accounts. Based on these considerations, AIB will increase the rate on all Variable Home Mortgage Interest rates by 0.50%, effective from the week of 3rd September 2012.

All impacted customers will be notified in writing week commencing 30th July 2012.  Letters will include the date from which the new rate will apply, details of the old and new rate and the revised repayment amount.

Summary of Variable Interest Rate Changes

Existing Residential Owner Occupier Standard Variable Rate will increase by 0.50 % from 3.00% to 3.50%

Loan to Value Variable Rates for Owner Occupiers will increase by 0.50%

Buy-to-Let Standard Variable Rate will increase by 0.50% from 3.95% to 4.45%

Tracker Mortgage Rates and Fixed Rate Mortgage interest rates remain unchanged

We will issue a revised rates matrix to reflect these changes prior …

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If we mess with money lenders people will go to loan sharks.

I have written about regulated money lenders in the past, and frankly, I am astounded at the rates they charge . An effort to cap or reduce the extortionate rates has been shot down.There is a market rationale for higher rates than the high street:

1. As they are regulated that creates a compliance cost of itself that loan sharks don’t have to contend with. 2. The type of lending undertaken is beyond ‘sub-prime’ and the default risk is massive. Unlike a loan shark who will beat somebody up, a regulated money lender only has recourse to the courts. 3. Security costs are high, this type of lending is done door to door and collections are usually done in the same manner, the majority of money lenders therefore have to hire security – something which loan sharks tend to do on their own (they are both lender and enforcer).

Does …

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TV3 The Morning Show: Health Insurance, Car Insurance, Credit Unions

We were talking about health insurance, car insurance and credit unions this month on TV3’s personal finance slot. On health insurance in particular we highlighted that you don’t have to go from ‘having cover’ to having zero cover, instead you could opt for the likes of the Hospital Saturday Fund which is a cash plan (pays out on health related spending but isn’t like regular insurance).

Car insurance was also a topic – the new EU ruling will make it illegal to rate men and women differently based on their sex alone from 21st December this year.

Credit Unions were (and are) in the news because of problems they are having. We’ll be back with TV3 next month for more!

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New ‘Consumer Protection Code’, the proposed CPC47 going forward.

The original Consumer Protection Code was brought out in 2006 and it was a welcome augmentation to the Regulatory environment, since the financial crisis began we are increasingly hearing calls for ‘more regulation’.

Naturally, good regulation is of benefit to both industry and consumers alike, perhaps industry is actually the greater beneficiary because faith in the financial system allows funds to flow freely and in turn financial firms can make profits with greater ease albeit at lower margins (increased competition tends to go hand in hand with that environment).

However, Regulation that is there to hog-tie or ‘get back’ at either beneficiary of regulation is flawed, so something that hammers banks or consumers is ultimately not an achievement but a regression, and for that reason I can’t help but feel sceptical about the new Consumer Protection Code which will come about from the briefings laid out in consultation paper 47 (recently closed).

Where are the key areas that the failure arose?

Bank …

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