Bank margins after NAMA

The current debate is raging over NAMA and the pricing of loans, much of it centres on the value of the properties in question and about the way in which a ‘loan’ is valued (as opposed to the underlying asset). This makes for good headlines, but it doesn’t help the average person who is not shaping policy and who’s sole role in this mess will be to carry the can and pay their part in the tax pool which will ultimately fund the bailout.

However, you may be affected in other ways, and these are things which you have the choice of opting out of, namely that of the margin you are paying if you currently have any debt/credit outstanding.

Once NAMA comes in it will be extremely likely that banks increase their margins, it is important to consider the ‘why’ as much as the ‘when’ though so we’ll take a look at those.

Why?

PTsb lead the way on this, because they are not getting NAMA protection they have no need to worry …

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Understanding why mortgage rates MUST rise.

We have been saying for some time that interest rates on mortgages must rise, you can look at supply and demand, or you can look at the types of products that have ceased to exist such as tracker mortgages (removing fixed margin loan products) and then there is the proliferation of variable LTV products which set the stage for the ability to manipulate margin on more loans. The question is ‘what all of this means’, and the purpose of this post is to explain how deposits, business lending and mortgages are all interconnected parts of the banking system and how margins are set based upon them.

Last week PTsb finally came out and said that they were considering an

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Irish variable rates March 2009

Here are the variable rates on offer at present from Irish lenders

AIB variable 2.79% ICS variable <50% LTV 2.90% BOI variable <50% LTV 2.90% AIB LTV 50-80% 3.00% EBS variable 3.13% Halifax LTV<50% 3.15% KBC (12mth disc.std.var) 3.98% Haven variable 3.7% PTsb LTV<80% 4.1% PTsb LTV>80% 4.2% NIB variable 4.23% Bank of Scotland 4.23% First Active 4.5% Ulsterbank 5.4%

These variable mortgage rates are as of March 2009 ranked according to prices.

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The Criteria Crunch

We have just been informed that one the lenders we deal with are only getting through applications received by the 4th of March, that is a near 20 day delay on new applications they are considering. Why the backlog? Has the market suddenly recovered? Are they being flooded?

No, rather it is a case that in banks nearly everybody has been enlisted to work in ‘collections’ and the staff were taken from every other department, in particular the ‘new business’ section. The bank we are talking about today merged their direct channel with brokerage so even going via a branch makes no difference, the whole company has only four working underwriters.

So inasmuch as the credit explosion saw too many resources being thrown at lending and the expansion of same, the crunch is doing the exact opposite by overshooting the mark in the reduction of resources. For a publicly quoted bank to be 20 days behind means that the market is facing yet another hurdle in reaching its rational level. Lending hasn’t frozen, people are …

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Generic overview of the market 2009: by sector

I was asked by a colleague in the UK to provide an overview of the Irish mortgage market, he has often advised the Bank of England in the past on the UK buy to let market, however this time it is in relation to a talk he was due to give to an international financial services group on the Irish economy. Below are the contents of my correspondence which is a no holds barred view of the mortgage market in 2009.

Remortgage: This area is finally starting to see some life again, the rate drops are filtering through and many of the people on fixed rates taken out in 2005/2006/2007  are shopping around, as always new business attracts better rates than existing customers so there is once again an argument for switching.

However, the many people who took out trackers are basically out of the market in the long term as every single lender has removed tracker mortgages from the market, in fact, if you know of a lender willing …

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