Could this happen?

Red_Marauder

I was just thinking about Halifax and their decision to leave the personal banking market in the Republic of Ireland and I have a question about how a business could manipulate this kind of manoeuvre.

Say I want to open a bank. What is to stop me from emerging into this market, handing out (safe) mortgages reasonably liberally at adattractive rates, then suddenly ceasing operations. Couldn't I then, if I were very unprincipled, live off the fat of all of my mortgage holders and seriously tank up the rates on a contiunual basis as long as my lendees continued repayments?

I would effectively have left the market and would be making money from my lendees on a growing basis, and all of it free from the hassle of competition. Could this be done within the law? And if so, and it would be profitable, why is nobody doing it?

Gamesnash.ie: Pat

Red_Marauder wrote: »

I was just thinking about Halifax and their decision to leave the personal banking market in the Republic of Ireland and I have a question about how a business could manipulate this kind of manoeuvre.

Say I want to open a bank. What is to stop me from emerging into this market, handing out (safe) mortgages reasonably liberally at adattractive rates, then suddenly ceasing operations. Couldn't I then, if I were very unprincipled, live off the fat of all of my mortgage holders and seriously tank up the rates on a contiunual basis as long as my lendees continued repayments?

I would effectively have left the market and would be making money from my lendees on a growing basis, and all of it free from the hassle of competition. Could this be done within the law? And if so, and it would be profitable, why is nobody doing it?

Presumably those lendees would switch to a bank with a lower mortgage rate. Can't force them to stay with you while you up the rates.

Red_Marauder

Gamesnash.ie (Pat) wrote: »

Presumably those lendees would switch to a bank with a lower mortgage rate. Can't force them to stay with you while you up the rates.

You can't easily just 'switch' your mortgage. You could pay it all off by taking out a new mortgage, which would involve paying even extra in fees when it is written into the contract.

Gamesnash.ie: Pat

Red_Marauder wrote: »

You can't easily just 'switch' your mortgage. You could pay it all off by taking out a new mortgage, which would involve paying even extra in fees when it is written into the contract.

But eventually there would be a point where the extra fees involved in switching would be preferable to continued interest rate rises versus the rest of the banking sector. And even .25% of an interest rate rise over the term of the loan would do this.

All that said I'm not too sure a bank can pull out like that without passing / selling on the mortgage accounts to someone else in the first place. Someone a lot more qualified than me can comment on that.

dotsman

Um, isn't this already happening with Halifax, PTSB, NIB, UB etc. Fought aggressively during the good times, capturing a huge percentage of the mortgage market. About 2 years ago, as customer began to slip into negative equity (and thus, cannot switch to another provider), they started to up their rates.

Customers, who saved themselves a few quid during the good times are now paying hundreds extra each month than if they had stayed/gone with AIB/BOI/EBS. Practically every day in the media (esp Eddie hobbs) during the good times, people were told to abandon the irish banks and go with the foreign/smaller banks. Now, all the media does is complain that their is a lack of competition. The problem was that the market was far too competitive, with many of the smaller/newer banks using loss-leaders to rapidly gain market share. Recessions or no recession, there was no way it could last forever.

The very same continues in the credit card market. Again, the media (and, again, esp eddie hobbs) is telling people to switch to cards with low/zero interest transfers. The problem with this game of musical chairs is that sooner or later, the debtor is not going to be able to find a new credit card to switch too, and be stuck paying ridiculous permanent interest rates (typically, the better the temporary special offer, the higher the interest rates/charges are once the initial period is up).

dudara

Moved to Banking & Insurance & Pensions

dudara

Red_Marauder

Gamesnash.ie (Pat) wrote: »

But eventually there would be a point where the extra fees involved in switching would be preferable to continued interest rate rises versus the rest of the banking sector.

Not necessarily, since the fees would be to a magnitude determined by the mortgage lending institution in question.

All that said I'm not too sure a bank can pull out like that without passing / selling on the mortgage accounts to someone else in the first place.

A bank can cease lending and still have thousands of loans on their books, it's exactly what Halifax are doing, theres no problem with it.

dotsman wrote: »

Um, isn't this already happening with Halifax, PTSB, NIB, UB etc. Fought aggressively during the good times, capturing a huge percentage of the mortgage market. About 2 years ago, as customer began to slip into negative equity (and thus, cannot switch to another provider), they started to up their rates.

Yes but the Halifax rate is still competititve.

What I really mean is what is to stop a bank from becoming quite seriously un-competitive and extortionate once they technically cease lending.

Gamesnash.ie: Pat

Red_Marauder wrote: »

Not necessarily, since the fees would be to a magnitude determined by the mortgage lending institution in question.

I'm not with you on this at all.

If there are admin fees to exit then these would have to be in place right from the start of the loan and therefore would influence the initial decision to go with that lender. As such they would have been there whether or not those rates were jacked up after the lender withdrew from the market.

The only way specific cancellation / early termination charges can be levied is if the mortgage was taken out as a fixed term loan. In that case the bank can't raise the interest rates in the first place.

Or have I missed something ?

keary79

you would have to go through the regulator for most things.
u cant just set up a bank!! or set ur own rates.
there is alot of legal and compliance stuff

stepbar

Red_Marauder wrote: »

Not necessarily, since the fees would be to a magnitude determined by the mortgage lending institution in question.

A bank can cease lending and still have thousands of loans on their books, it's exactly what Halifax are doing, theres no problem with it.

Yes but the Halifax rate is still competititve.

What I really mean is what is to stop a bank from becoming quite seriously un-competitive and extortionate once they technically cease lending.

The Consumer Credit Act should protect people from this sort of behaviour. Any regulated organisation must adhere to the codes set out in the act. The max APR a regulated org can charge is (from memory) 23%. The Financial Regulator (again from memory) has the power to step in and go "that's not fair". Before an org announces a rate hike it must be approved by the Financial Regulator.