AIB closing to switchers: Why? And what does it mean?

AIB announced today that they will be closed to switcher mortgage business effective immediately. We spoke to Mary Wilson from RTE’s Drivetime on the topic and we stated similar views to what you will read here.

The options open to a bank with limited liquidity are essentially ‘who do we lend to’, in terms of expanding credit or extending credit to where it may have a meaningful economic impact. Sadly (because I have to be honest, as a broker this really sucks for us) that means cutting out certain parts of the market such as switchers.

The rationale is that switchers already have the money, they are merely shopping around for a better price, first time buyers on the other hand, haven’t even gotten the money to buy a home with yet and if you have to choose between the two I think it is fair to say that AIB made the right decision. Their commitment to the state during their recapitalisation was to first time buyers, not refinancing applicants or …

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How many kicks can a broker take?!

How many kicks can a broker take before rolling over and crying ‘uncle!’. A whole bunch it seems.

Today AIB informed the intermediary market that they were capping commissions at €1,500 per loan as a maximum irrespective of the loan size. We feel that banks reward people unfairly and in a ridiculous short-term manner, AIB are no different but they are doing so at the detriment of brokerage.

I’ll qualify that: currently, broker distributed loans are highly profitable for AIB, they don’t have to pay for broker overhead, branch costs etc. I have it on good authority that they have explained this to broker representation bodies in the past, so why curtail any money a broker might make? (As if the current market wasn’t making it hard enough already!).

Simple, because it means you have more money to keep branch distribution alive, and in order to support unprofitable branches you have to find excess profit elsewhere, one of the soft targets is …

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Save the best until last.

Bank recapitalisation is looking more likely for several Irish players, however, an important precedent must be observed – we saved the weakest first and therefore we will almost invariably need to save the best.

The ongoing Anglo debacle is evidence that we opted to get behind a bank that had falsely represented its balance sheet, over exposed itself to high risk clients and run short of money. So we saved the weakest, and that sets the foundation for saving the strongest. The idea that we should only save strong banks never gained traction and that is unfortunate. The State is being left to foot the bill now, is this fair?

Capitalism is being blamed for the current crisis, banks are also being blamed, but what about Governments? What was their role?

Monetary excess is often the cause of the boom and thus the bust, both the Fed and the ECB kept rates artificially low for far too long, Ireland entered the Euro and availed of low rates and high liquidity that was in …

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Regulatory distortion of the market, intervention required.

The Financial Regulator has been under increased scrutiny and for that reason it is probably a good idea if they take steps to ensure a fair and transparent marketplace, because the current public sentiment is that they have not performed their job as well as they should have. From the point of view of the intermediary channel, there are marketplace distortions that are actually harming customers and we have explained this via broker representative bodies but to no avail.

The issue currently causing problems is that of dual pricing/dual offerings. This occurs where a bank has one price if you go direct, and another if you go through a broker, or where they offer incentives via one channel that cannot be matched in another. The danger is that independence of advice is under threat when there are ‘teasers’ involved through any channel that diminishes the potential for multi-institution advice.

If banks were willing to compete across all distribution channels equally it would be one thing, but they are not, in fact, …

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Banks ARE lending, just not freely or irresponsibly

I have read several articles in this week in our  national papers and in them the authors said ‘banks are not lending’ and in one it was implied that this was somehow wrong. A point of order must be raised, firstly, it’s not wrong and secondly they actually are lending, just not freely or irresponsibly.

The frustrating thing is that even after all of the fallout, all of the crashing property prices, all of the international crisis news, that so many people still don’t get it. Cheap credit and easy lending is what go us here to begin with, we won’t fix the Irish economy with more mortgages being freely available.

Lobbyists take note: While you might strong-arm or influence the Government (I don’t know which method lobbyists use but either way they are effective) into supplying money for mortgages via recapitalisation or Homechoiceloan or any other plan, the fact is that reasonable people will not sign up to it, they will buy when …

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Trade Unions and recessions, why they should not be considered.

Trade Unions, by definition are not academic organisations dedicated towards finding working solutions for the economy, rather they are protectionist in nature, specifically towards their members, which is why I am constantly surprised by the media leverage they achieve in various ‘solutions’ they arrive at for the current crisis.

To put it simply, Trade Unions are to economic progress as Kryptonite is to Superman. The wage deflation required to restore a working status-quo in our nation will not be achieved with increments, or guarantees of high wages, rather the inverse is true, now more than ever there is an argument for removing the minimum wage and allowing employment to find its own level, alternatively we can tax ourselves into oblivion and support artificially long dole queues and public spending.

‘Artificially’? How? Simply put, there are many people now who would likely show up to work for eight Euro an hour, and there are perhaps employers who would be happy to pay this to them, but the minimum wage …

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The risk of mergers to consumers

There is much in the news about private equity firms and various banks being ‘in talks’ about how they may work together (translation: some type of potential merger of parts of the business or total merger). Every bank seems to be in the spotlight right now and rumours are rife while fact is thin on the ground.

Every headline of every paper carried a bank story today, it is almost like society has moved from its fixation with property to a fixation with banks and their core tier 1 capital. If we mentioned Basel II accord a year ago people would look at you funny, today that and other terms akin to it are entering daily discussion at an alarming rate.

There is (as of today) no certainty that banks are going to merge, fail, succeed, or do anything other than what they normally do, however, if we were to make an assumption that at least three or four banks were to merge …

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Every little helps…. Mortgages by Tesco?

I read an interesting article today (here) about Tesco. Apparently Tesco Personal Finance will offer mortgages in the UK in the near future, however, they have not decided if they will include broker facing product ranges in the recently announced offering.

The supermarket chain has taken on Benny Higgins, former head of retail business at HBOS, and in press over the weekend he says there are plans to expand the Tesco Personal Finance offering to include mortgage and current accounts products.

He said “Today there is an opportunity to be a responsible lender in mortgages. At present there are still funding problems but that will change. In the second quarter of next year financing will be freer and there could be a very active re-mortgaging market.”

Tesco have (in Ireland) faced bitter competition from discounters such as Aldi and Lidl, however, neither of those firms have entered into the personal finance arena. Tesco is already doing car insurance, …

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