Pat Kenny interviewed Karl Deeter about the Central Bank lending rules and why, in his view, they could have been done slightly differently and better. It’s an interesting insight into the difference between control-lead regulation and results-oriented regulation.
There was an interesting infographic out today from One Big Switch showing what people have done in order to make their mortgage repayments.
It ranged from working extra hours, to taking fewer holidays and socializing less. What is interesting about this, is that nobody tends to look at the wider economy effects of high mortgage rates, and the Central Bank while saying they want to examine them, cannot and will not do anything about it.
Higher rates act like an informal ‘tax’, and as some banks are foreign owned it means taking income out of the Irish economy and funnelling it elsewhere, this affects our balance of trade and was a reason we always questioned the Patrick Honohan diktat of not having an issue if all banks were foreign owned.
This informal tax reduces expenditure in the productive economy and goes towards rationalizing zombie balance sheets, so lower rates should be a priority for everybody, but the way to get there isn’t force, it’s competition and for that reason we are hopeful that the switching campaign will be a successful …
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 …
The Central Bank rules on curtailing mortgage lending have had an interesting effect, first is that we are seeing more loans draw down that might not have because people are bringing forward consumption due to the fact they won’t qualify for the same amount again in the future. This is literally the opposite of the intended effect.
Second is that it’s causing chaos for prospective buyers who may hold an exemption or need an exemption because there are quarterly reporting rules that mean banks can’t offer a new loan until they know if an old one will be drawn or become an NTU (not taken up).
Perhaps the easiest thing to do is explain it, currently you can’t get an exemption from Ulsterbank or AIB/EBS/Haven or BOI, but you can from PTsb and KBC. The banks that can’t give you one (and remember it’s only one of LTV or LTI not both) are hogtied because they have given the limit of exemptions (c. 15%-20% of lending) already in loan offers and they have to estimate both the annual and quarterly …
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 …
On talking money we looked at mortgage rates, where they are, where they are headed and what the best choice might be for people who are trying to decide what is best for their personal situation.
It’s a tricky question, rates can and do go up and down, but we believe the long term trend is for rates to go lower, in fact, that trend has already been occurring and there isn’t anything that seems in a position to stop it from happening. This is good news for borrowers (not so good for deposit savers!).
Yesterday we were on the Sean O’Rourke show discussing variable rates on RTE Radio. We mentioned how doubling the ‘tax’ on banks won’t actually change anything. The mechanisms were briefly covered and we got a few emails asking for clarification so here it is.
The ‘levy’ was part of the Finance Act 2014 which imposed a new annual levy on financial institutions aiming to raise €150 million per annum for 3 years.
This sum is payable on October the 20th in each year (2014-2016) and it applies to a financial institution that is the holder of an Irish (or equivalent EU) banking licence or is an Irish (or equiv EU) building society that was obliged to pay DIRT – unless the amount required to pay in 2011 was not more than 100k.
The main outcry is centred on variable rates for primary home dwellers in particular. So how much of that debt is out there?
We know there are about 300,000 ‘loans’ but the quantum of debt is €39.638m which is about €3bn …
We were asked to take part in a studio debate (at the end of the clip) on Standard Variable Rates, why they are so high and what we should do to bring them down. We believe they are already headed down and that this is mainly a straw-man issue, rates are going to come down in spite of anything anybody does.
We have been asked a few times about fixed mortgage rates and why they are lower than standard variable rates at the moment.
This has been going on for a few months in the mortgage market and the reason is fairly simple, lending rates are going to drop over time.
The one year fixed rate has traditionally been one that is used to attract business to a bank or building society. They are often a loss leading rate and after availing of it the person goes onto a higher rate or another fixed rate so we have to strip them out.
But from the 2yr rate onwards you normally paid a premium over and above the standard variable rate. So what is happening?
Lower fixed rates mean that banks are going to capture a margin that is likely to decline in the near future. The Euro yield curve is below.