Shadow mortgage lending in Hong Kong

Property prices have been booming in Hong Kong over the past couple of years, and have yet to reflect any slowdown. While various governmental regulations have attempted to curb growth, a closer look at Hong Kong’s mortgage market reveals that shadow lenders are rapidly gaining ground. These mortgage lenders operate outside of financial regulations and have become the option of many buyers as more limits are placed by the Central Bank on traditional forms of financing.

 

Shadow lending describes private lending performed by institutions that are not tradition banks. These institutions can be financial intermediaries or other lenders and provide similar services as banks. These institutions do not necessarily create instability in the financial system, and can be greatly beneficial by offering financing to buyers in a time where restrictions on tradition banks are tight. However, these institutions lie outside the control of official regulatory institutions, thus their lending practices may be at greater risk if a financial downturn were to happen.

 

In most countries, the major of home loans are still made out by traditional banks, and …

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Mortgage lending gets tougher in Canada

The Canadian housing market has been growing rapidly in the past few years. Currently, many experts fear that home in cities like Toronto and Montreal are greatly overvalued, a reflection on the general instability in the Canadian economy. While Bank of Canada has yet to announce its well anticipated interest rate hike that will curb the rapidly rising house prices, lenders have already begun tightening lending rules and raising mortgage rates.

 

Early this month, major lenders Bank of Montreal, CIBC and Royal Bank of Canada have all raised rates on various types of fixed rate mortgages. Both Bank of Montreal and Royal Bank of Canada raised mortgage rates by 0.2% and rates at CIBC raised by 0.05%. The higher rates of lending is thought to precede Bank of Canada’s anticipated rate hike, which may come as soon as tomorrow.

 

Accompanying the higher mortgage rates is a series of other lending restrictions put in place by Canada’s banking regulator, The Office of the Superintendent of Financial Institutions …

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Pepper Money Expands Lending in Ireland

Pepper Money, an Australian lender, will soon begin offering commercial property loans ranging in value from €250,000 to €7.5 million to borrowers in Ireland. It hopes to extend €300 million worth of commercial loans within the next two years, roughly half of what the Strategic Banking Corporation of Ireland has extended at the end of March 2017. These loans will meet the demand of professional buy-to-let borrowers hoping to refinance and the demands by first time buyers for properties with various commercial uses.

 

Pepper Money has been keen on taking risks in lending and exploring new markets, being the first new lender to enter the Irish Market for residential mortgages after the market crash and financial crisis, offering small home loans through brokers and direct channels. While entering the market for commercial mortgages, Pepper also plans to lend to borrowers with historical credit issues who have had trouble meeting criteria to obtain loans from banks and other lending institutions in Ireland. It will offer loans to borrowers as long as they are up to date for the past 18 …

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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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Our submission to the Central Bank on CP87 – Mortgage lending caps

We submitted a paper to the Central Bank on the mortgage cap proposal they have put out for consultation. Our view is that apart from being a crude instrument that it doesn’t work, Hong Kong is being used as an ‘example’ when in fact they are the very example that demonstrates best that the policy is misguided.

As practitioners we think a far more nuanced approach with other solutions such as higher stress tests, a freeze on underwriting criteria and mortgage insurance should the lender wish to avail of it are better.

Our submission can be downloaded here.

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Prudence puts you deeper in debt… Nice work by the Central Bank

The news that higher loan to values will have to be limited is being mistakenly applauded by many financial commentators, almost none of whom work in credit. Towards the end of the post we demonstrate that you can actually be worse off by being forced to wait and put down a larger deposit than if you acted normally and bought today with a 10% deposit.

That’s why taking a look at the numbers beneath and how it will affect mortgages is important. First time buyers are typically the younger end of the house owning spectrum, they largely chose to stay out of the market during the financial crisis, a good choice, very rational.

That is why the people renting rose so much between 2006 and 2011. A total of 474,788 households were in rented accommodation in 2011, a considerable rise of 47 per cent from 323,007 in 2006.

It created a build up of non-owners who want in, but who are not the main driver of property price increases …

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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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RTE Drivetime – the IBF property market report, 28th May 2013

We were asked to speak to Mary Wilson about the IBF property report on RTE Drivetime. There was a view given earlier in the day that the month on month increase in applications was a positive thing, we chose to look at year on year figures which tell an entirely different story. And while lending is down 26%, drawdowns down over 18%, transactions are up over 14%.

To us this is indicative of a market where credit is not functioning in it’s natural role, price is not the issue, it’s scarcity which is the problem.

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Disintermediation – can you beat the banks with alternatives?

Banks take money from depositors, lend it to borrowers and keep the difference between what they pay the depositors and what they lend at, this is the most basic model of banking, and it’s called ‘financial intermediation’.

This doesn’t mean anybody else couldn’t do something similar if they had money and wanted to lend it to another person, the whole idea of letting banks do it is ease of use, that they have risk taking ability, and some indemnity because unless huge tranches of the loans they do go bad you don’t lose your money, on a one to one basis you only need one bad loan to have 100% losses.

It is sometimes a risk worth considering. Take for instance if you have a family member who has substantial money and they want to help out a relative. Depending on the type of relationship they can’t ‘gift’ them the money, nor may they want to, but they can lend them the money.

Doing this means you have to …

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