Highlights from the 2017 Macro-Financial Review

The Central Bank of Ireland published today it’s 2017 Macro-Financial Review. The report gives an overview of the Irish economy and the state of its financial environment. The aim of the report is to help protect the interests of the Bank’s stakeholders, these include: the Irish people, national and international authorities, and other participants in the financial market.

Sharon Donnery, the Central Bank’s deputy governor, introduced the report in a speech this morning. She states that the state of the general economy is improving, but also mentions a few outstanding issues that have the potential to negatively impact the economy’s improvement.

The report notes that much of the uncertainty in the Irish economy is a consequence of Brexit. The depreciation of the sterling against the euro and decreasing consumer spending in the UK has already put a burden on export industries. Uncertainties relating to Brexit may also arise from new trade barriers, trade policies and changes in international taxation.

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Irish Mortgage Brokers mentioned in the Independent

In an article by Sinead Ryan in the Independent we were quoted on several matters:

With all the talk of celebrating the Rising in 2016, it won’t extend to a rising mortgage market, says broker Karl Deeter. “The changes to lending criteria and in particular the Central Bank changes meant that while 90pc LTV (loan to value) mortgages were available, as the year progressed more banks started to withdraw them. Due to the way the figures are going to be reported in 2016 it will be a case of, ‘Want a 90pc mortgage? Get it in January or July’. And that’s because the half-year periods are going to be the times in which they are mostly available.”

One positive change, says Deeter, was that interest rates came down during the year, in particular fixed rates as banks came under pressure to explain Ireland’s excessive rates compared to those enjoyed by our EU neighbours. Although all banks rocked up at the Banking Inquiry, and most were (or tried their best to sound) contrite, the truth is that pillar Bank …

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Drop rates so banks can lend more…

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 …

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Can Noonan or Honohan actually do anything on variable rates? (no)

The calls to lower rates by opposition politicians such as Michael McGrath on Primetime this week is making daily headlines. Charlie Weston doing a cracking job as always bringing personal finance to the front of the paper has ensured it lead for the last two days.

This has gone from the line that ‘it’s not our place to set prices to the news broken by Martina Fitzgerald that ‘Noonan and Honohan are going to pow-wow about it’.

Don’t expect much. The official responses from both the Department of Finance and the Central Bank are below. Note in particular that Honohan makes the case for non-intervention very clear.

The email sent to both was the same:

Question: Is there any explicit power the Central Bank/Department of Finance has to compel banks to change or lower their standard variable rates? If there is can you indicate which part of any Act that the power to do …

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The ESRI and the Central Bank butt heads.

This headline appeared in the Indo today. We agree with the idea of a safer market, but also agree with the ESRI on this, that it was badly timed, inappropriate and will actually cause more problems than it fixes due to being badly timed.

We would agree, our submission on the subject was one of the few that articulated the problems, why the moves wouldn’t prevent boom-bust and gave empirical evidence supporting same. Meanwhile many others were falling over themselves to commend Patrick Honohan and the Central Bank for being such good regulators.

They may have insulated the banks, but it’s at the expense of a market that will not provide for all of the people that need housing, in doing this it also helps to encourage speculation as one by-product is higher yields which re-attract investors into a market.

The ESRI have articulated this better than we did, and we support their findings. Oddly, the person behind the statements was the best economist the Central …

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Newstalk: Lunchtime speaks to Irish Mortgage Brokers about ‘mortgage caps’

Jonathan Healy of Newstalk spoke to Karl Deeter about capping mortgage loan to values and loan to income amounts. This is a logically compelling idea but it won’t fix the supply shortage or necessarily prevent the problems we are told it will fix. It will also mean that about 2 in 3 first time buyers face an adverse effect that people who already bought didn’t have to deal with, namely that of trying to save up a 20% deposit.

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RTE Primetime spoke to Irish Mortgage Brokers about lending caps

Robert Shortt from RTE’s Primetime show spoke to us about the Central Bank idea of putting caps on lending in terms of the loan to value and the loan to income ratios. There is a sense in this, but we don’t believe such a crude instrument is nuanced enough to negate the downsides that such a policy brings with it. There are better ways to do this and they should be explored.

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Central Bank findings on interest only mortgages

The Central Bank released some findings on interest only mortgages (below), we’ll follow up with some commentary and interpretation soon.

(starts)

The research analyses the loan characteristics, including loan performance, of mortgages originated on interest-only terms in Ireland.

The main findings of the research are:

While interest-only arrangements have been widely used as a means of temporary forbearance to deal with the current mortgage arrears crisis, mortgages were also originated on interest-only terms during the height of the boom. Between 2005 and 2008, interest-only mortgages were mainly issued to buy-to-let investors on tracker mortgages and at high loan-to-value ratios. Interest-only mortgages were more likely to be issued to buy-to-let borrowers in Dublin and for the purchase of apartments than standard mortgages. The arrears rates on these mortgages are higher than standard mortgages. A significant number of interest-only mortgages are due to revert to principal-and-interest repayments in the next 2 years. The resulting higher repayments for these borrowers could lead to an increase in mortgage arrears. 44 per cent of the buy-to-let interest only borrowers will …

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