Unfair mortgage rates in Ireland

Wesser

http://www.irishexaminer.com/business/running-out-of-excuses-not-to-cut-costly-mortgage-rates-401062.html


According to this man, Irish mortgage rates are on average 1.8 percent higher than our European counterparts. Eg 3.6 % versus 1.8%

Thus means an extra 300 a month if you have borrowed 200000,
This is 3600 a year which is WAY more than water charges, which we protested very hard about.

I find this shocking and very difficult to swallow.

Ste.phen

Did he say why they should be the same as other European countries?

It's incredibly difficult to get the asset (house) back if someone stops paying their mortgage in Ireland, and people have an awful habit of stopping paying and not suffering any prompt consequences:

Examples:
http://www.independent.ie/business/personal-finance/property-mortgages/one-in-six-council-mortgages-not-paid-in-a-year-34980636.html

Or this one:
http://www.independent.ie/irish-news/courts/driving-instructor-who-owes-over-170k-in-mortgage-arrears-and-40k-in-credit-card-debts-loses-home-34864827.html

I mean, I'd love to pay 20 quid a month for years against a half-million-euro house, but I guess we don't all have that option

Wesser

They should be the same in every country because all the banks borrow off the same bank , the ECB.

He outlines the reason why they are so high in the article.

A small number of people who are defaulting on their mortgage is NOT the reason we are subjected to high rates.

I think we need to have a ' national conversation' on this issue, as they say, to highlight and put pressure in the government to rectify the situation.

L1011

Wesser wrote: »

A small number of people who are defaulting on their mortgage is NOT the reason we are subjected to high rates.

It is - the asset is all but unrecoverable here and you even have politicians trying to make it actually unrecoverable. Banks have to price that risk in.

To get 1% you'll need to be able to be kicked out in months.

testaccount123

Wesser wrote: »

They should be the same in every country because all the banks borrow off the same bank , the ECB.

He outlines the reason why they are so high in the article.

A small number of people who are defaulting on their mortgage is NOT the reason we are subjected to high rates.

I think we need to have a ' national conversation' on this issue, as they say, to highlight and put pressure in the government to rectify the situation.

A small number? There are nearly 30000 mortgages in over 2 years arrears in Ireland.

ted1

Inability to repossess , and to evict sitting tenants is the reason.

koheim

So we should just obey the banks, roll over and accept getting screwed....Great irish solution for unique Irish problem

A_Sober_Paddy

koheim wrote: »

So we should just obey the banks, roll over and accept getting screwed....Great irish solution for unique Irish problem

I think we need to push for a better procedure to dump people out of properties they aren't paying their mortgage on.

davo10

There are tens (possibly hundreds, a quick search for numbers didn't bring up an accurate number) of thousands of tracker mortgages which are linked to ECB rates which are at historical lows. The banks are losing money on these and Irish tracker mortgage holders are paying well below the European variable rate average.

Op, if the Irish banks announced that they would reduce variable rates for everyone if tracker mortgages were abolished and legislation was introduced that made it easier to recover properties from owners in arrears, would you agree to this?

You can't blame a business for trying to offset loses by increasing profits, that's what all businesses do.

http://m.independent.ie/opinion/columnists/colm-mccarthy/unprofitable-trackers-hide-full-extent-of-bank-losses-31248501.html

Calina

Wesser wrote: »

http://www.irishexaminer.com/business/running-out-of-excuses-not-to-cut-costly-mortgage-rates-401062.html


According to this man, Irish mortgage rates are on average 1.8 percent higher than our European counterparts. Eg 3.6 % versus 1.8%

Thus means an extra 300 a month if you have borrowed 200000,
This is 3600 a year which is WAY more than water charges, which we protested very hard about.

I find this shocking and very difficult to swallow.

Business conditions here can be quite different to business conditions elsewhere. For example, at a time where you needed a 10% deposit in Ireland, you needed a 25% deposit to buy in Germany.

It is entirely possible that if we were not part of the eurozone though and had a floating currency, that our interest rates could, at various points, have been significantly higher than they are now. So the question you need to ask is this: would you prefer to pay 3.6% on your mortgage of 15% on your mortgage. There are still a few people alive who'd probably cut your legs off to pay 4% instead of the 15% they paid at various points.

The point is, if you want things to be similar here to elsewhere, you need to swallow other things being different. Germany has a 15% charge for mandatory health insurance for example. The water charges are way higher in parts of Belgium to what they are here, as they are in France. There's an element of swings and roundabouts here and that's before you look at the fact that there was a 12 month moratorium on repossessions (except from investors whose tenants wound up getting messed around instead).

Which would you prefer - it to be easier for the banks to repossess in payment failure, or lower interest rates?

Tin Roofer

I'll vote to keep my tracker, thanks. I signed a contract with the bank, I expect it to be honoured, otherwise I would have walked away from my negative equity years ago rather than keeping up repayments.

Making me pay more for my mortgage so someone else can pay less is not a legitimate solution, it's something I would expect to hear from SF or AAA/PBP.

Any party that implemented this would be annihilated in the next election.

Boater123

Not an economist and a genuine question:

If Tracker mortgages are set at a certain percentage above the ECB lending rate, and all Irish banks borrow from The ECB, then why do the banks say they're losing money on Tracker mortgages?

Is it not more accurate to say they are not making enough on Tracker mortgages because of their own operating costs?

ted1

Tin Roofer wrote: »

Making me pay more for my mortgage so someone else can pay less is not a legitimate solution, it's something I would expect to hear from SF or AAA/PBP.

.

Effectively that's already happening with Variable rates supporting trackers

ted1

Boater123 wrote: »

Not an economist and a genuine question:

If Tracker mortgages are set at a certain percentage above the ECB lending rate, and all Irish banks borrow from The ECB, then why do the banks say they're losing money on Tracker mortgages?

Is it not more accurate to say they are not making enough on Tracker mortgages because of their own operating costs?

Banks don't borrow at the actual ECB rates, they also have overheads etc.

davo10

Boater123 wrote: »

Not an economist and a genuine question:

If Tracker mortgages are set at a certain percentage above the ECB lending rate, and all Irish banks borrow from The ECB, then why do the banks say they're losing money on Tracker mortgages?

Is it not more accurate to say they are not making enough on Tracker mortgages because of their own operating costs?

Banks don't borrow from the ECB at the "ECB rate", they borrow at a banking prime rate.

Boater123

davo10 wrote: »

Banks don't borrow from the ECB at the "ECB rate", they borrow at a banking prime rate.

Does the banking prime rate tend to be lower or higher?

Tin Roofer

ted1 wrote: »

Effectively that's already happening with Variable rates supporting trackers

And it is exactly what they signed up for. VARIABLE.

davo10

Boater123 wrote: »

Does the banking prime rate tend to be lower or higher?

Higher, it depends on the risk associated with the lending, Irish banks are risky.

relax carry on

Tin Roofer wrote: »

And it is exactly what they signed up for. VARIABLE.

And the variable rates are higher to support the tracker mortgages and the banks inability to repossess.

Lantus

Boater123 wrote: »

Not an economist and a genuine question:

If Tracker mortgages are set at a certain percentage above the ECB lending rate, and all Irish banks borrow from The ECB, then why do the banks say they're losing money on Tracker mortgages?

Is it not more accurate to say they are not making enough on Tracker mortgages because of their own operating costs?

They borrowed that money in the past when rates were higher. They still have to pay the central bank back at a higher rate but the customer is paying a much lower rate today as interest rates have bottomed out. The bank doesn't benefit from this.

Most banks have cut staff to reduce overheads but the fundamental issue is the tracker is currently losing them money.

dubrov

The cost of funding for most banks is readily available. I remember BOI published theirs last year and it was below even very low tracker mortgage rates.

Even if it was higher there would be nothing stopping new banks entering the market who do not have this legacy problem. This isn't happening as there is simply no recourse for loans that turn bad.

davo10

dubrov wrote: »

The cost of funding for most banks is readily available. I remember BOI published theirs last year and it was below even very low tracker mortgage rates.

Even if it was higher there would be nothing stopping new banks entering the market who do not have this legacy problem. This isn't happening as there is simply no recourse for loans that turn bad.

The cost of funding is readily available?, You mean, funding is readily available at a cost.

If you were an international bank, would you enter the Irish market with high rents, high wages, high default rates, difficult asset recovery procedures, difficult eviction procedures on buy-to-let properties etc? If the profits were directly in line with mortgage rates you would have a new bank on very corner.

Villa05

davo10 wrote:

If you were an international bank, would you enter the Irish market with high rents, high wages, high default rates, difficult asset recovery procedures, difficult eviction procedures on buy-to-let properties etc? If the profits were directly in line with mortgage rates you would have a new bank on very corner.

They are considering it. A fresh bank in the market that can pick off prime customers would be very profitable.

One would wonder is it being made difficult by government to protect the parasite banks here. Its been done with housing supply to keep the prices up.

A very dangerous pyramid scheme is being propped up at every turn by people in very powerful positions

Wesser

Wesser wrote: »

Irish mortgage rates are on average 1.8 percent higher than our European counterparts. Eg 3.6 % versus 1.8%

Don't forget that these rates are historically really really low. Nobody should have problems repaying such mortgages. If they do, think of what will happen if the rates rise by, say 3%, an entirely possible event in a few years....

My first mortgage here had rates in the mid teens....

jon1981

We want mortgage rate parity with the EU average damn it!!

EU wide corporate tax harmonisation...eh would you feck off !

alias no.9

Lantus wrote: »

They borrowed that money in the past when rates were higher. They still have to pay the central bank back at a higher rate but the customer is paying a much lower rate today as interest rates have bottomed out. The bank doesn't benefit from this.

Most banks have cut staff to reduce overheads but the fundamental issue is the tracker is currently losing them money.

Its still a marginal loss if the mortgage is being repaid on schedule. The big problem is non payment which is a total loss.

aido79

Wesser wrote: »

http://www.irishexaminer.com/business/running-out-of-excuses-not-to-cut-costly-mortgage-rates-401062.html


According to this man, Irish mortgage rates are on average 1.8 percent higher than our European counterparts. Eg 3.6 % versus 1.8%

Thus means an extra 300 a month if you have borrowed 200000,
This is 3600 a year which is WAY more than water charges, which we protested very hard about.

I find this shocking and very difficult to swallow.

Too many penny smart pound foolish people in Ireland. People get screwed on mortgages rates , extortionate insurance premiums, ridiculous taxes on fuel, unfair PAYE rates on average incomes etc....no protests. But yet the biggest protest in living memory is over the smallest utility bill in the country.

murphaph

Villa05 wrote: »

They are considering it. A fresh bank in the market that can pick off prime customers would be very profitable.

One would wonder is it being made difficult by government to protect the parasite banks here. Its been done with housing supply to keep the prices up.

A very dangerous pyramid scheme is being propped up at every turn by people in very powerful positions

There are no government conspiracies to keep foreign banks out. By the way if a new entrant could come in and somehow identify the prime customers who won't default and only lend to them....what do you think would happen to the rates the dumb Irish banks who also lend to sub prime customers charge?

The reality is that mortgage lending in Ireland is significantly riskier than mortgage lending in Germany for a host of reasons to do with the underlying economy as much as ease of repossession of the security.

Q&A

If people feel so strongly that they should be 'entitled' to mortgage rates available in other European countries let them move to those countries.

As for the idea that banks fund themselves by borrowing from the ecb it's simply not the case. Imagine it was true, it would mean that bank had lost the confidence of depositors and financial markets alike. That's not a sustainable business model. That bank is effectively bust. Ecb makes up a small part of a healthy banks funding.

But let's say for arguments sake that such an Irish bank existed. It can borrow from ecb Peter to lend to Irish Paul.

Now let's assume a quarter of the loans given out stop paying - I know an absurdly high figure. Where in the world would that ever happen - that bank still has to pay back to ecb Peter the money it borrowed. Where does it find that money from?

The other three quarters of course. But wait there's a problem, on a lot of these loans the t&c's say the bank cant touch the rate unless the ecb changes first. Even then only by the same amount. In other words they are not really going to to make any extra money off them only offset any higher costs the bank faces. Not really any better off here. Let's say that's half the people the bank leant money to.

So now the bank is down to having to rely on the 25% that they can charge extra on and anyone new that walks into my local branch. To cover the cost of the people who can't pay or simply won't pay.

Of course they are going to pay a lot more. And that's before they pay for the cost of running the branch and paying staff.

In the above situation high Irish mortgage rates are starting to sound in line with what banks have to offer to just about break even

As for new banks, they wont face the same legacy issues, would anyone really see it as a good venture to come into a country were a quarter of people won't pay you back and the local laws make it near impossible to get your hands on the property? Can they be sure even if they charge enough to cover for those that wont pay will there be enough business to cover the cost of paying for their bricks and mortar branch network?

As a country its starting to sound like we're getting the deal we deserve given what happen. Might not like it but fairs fair.

Villa05

Irish banks would be uncompetitive and die. Extend and pretend would no longer be a viable policy where the mortgage is 2 or more years behind in repayments





Those underlying enonomic issues must really hamper foreign investment into the country

One bank has openly revised it's intentions to enter the irish market because of government interference in repossession cases

murphaph

Villa05 wrote: »

Irish banks would be uncompetitive and die. Extend and pretend would no longer be a viable policy where the mortgage is 2 or more years behind in repayments





Those underlying enonomic issues must really hamper foreign investment into the country

One bank has openly revised it's intentions to enter the irish market because of government interference in repossession cases

You're preaching to the converted if you just want to let banks swiftly repossess their security in the case of default. I personally think this would certainly have an effect on reducing mortgage interest rates but not to German levels because German property is simply likely to hold its value better than Irish property which rises and falls like a yo-yo because there's no long term policy in play with respect to the economy. In Germany there's a plan. It's slow and steady. I'm Ireland there's a rollercoaster ride of highs and lows. It's exciting but not conducive to low ling term mortgage interest rates because the value of the security can be wiped out too easily.

Over here even unemployment will not prevent a mortgage being granted so long as the applicant brings a large enough deposit to the party. The bank knows the asset should more or less hold its value so if the guy defaults the bank will not lose a penny.

Irish people don't seem to want speedy repossession. That mentality is completely the opposite over here.

koheim

AIB made 1.9 billion euro in profit before tax in 2015, But still i should accept to pay interest rates at a stupid rate. Interest rates will eventually go down in Ireland AS well, money will become cheaper for everyone eventually

athtrasna

Folks we're straying into territory more suited to the banking forum.

Q&A

athtrasna wrote: »

Folks we're straying into territory more suited to the banking forum.

It can't be helped if you're too have a fair and informed discussion on where we stand. Mortgages and banking are intertwined

koheim wrote: »

AIB made 1.9 billion euro in profit before tax in 2015

They did make 1.9bn on assets of 100.3bn, I.e., 1.9% return. Half of that was from the write back of money that had originally been put aside for bad loans. So you're looking at an actually return on their banking businesses of less than 1%. That's not as eye catching a figure as yours but puts it in some context for you.

koheim wrote: »

But still i should accept to pay interest rates at a stupid rate.

I would say yes but it's your call no one forced you to sign your mortgage contract. At the same time it would seem no one could force you out of your property if you decide not to pay.

koheim wrote: »

Interest rates will eventually go down in Ireland AS well, money will become cheaper for everyone eventually

Rates should converge, eventually as tracker mortgages are paid off. Bad loans are removed and people follow through on their commitments. But that will be a slow process.

Calina

koheim wrote: »

AIB made 1.9 billion euro in profit before tax in 2015, But still i should accept to pay interest rates at a stupid rate. Interest rates will eventually go down in Ireland AS well, money will become cheaper for everyone eventually

TBF, if the rates are to be deemed stupid at all, it's that they are historically low rather than historically high.

Sleeper12

Wesser wrote:

According to this man, Irish mortgage rates are on average 1.8 percent higher than our European counterparts. Eg 3.6 % versus 1.8%

In the first year of my mortgage interest rates went up to 15%. They are at an all-time low at the moment. I shudder to think what people with large mortgages are going to do when rates start to increase

Tin Roofer

Sleeper12 wrote: »

In the first year of my mortgage interest rates went up to 15%. They are at an all-time low at the moment. I shudder to think what people with large mortgages are going to do when rates start to increase

Which will happen when it suits the German economy.

lawred2

Calina wrote: »

Business conditions here can be quite different to business conditions elsewhere. For example, at a time where you needed a 10% deposit in Ireland, you needed a 25% deposit to buy in Germany.

It is entirely possible that if we were not part of the eurozone though and had a floating currency, that our interest rates could, at various points, have been significantly higher than they are now. So the question you need to ask is this: would you prefer to pay 3.6% on your mortgage of 15% on your mortgage. There are still a few people alive who'd probably cut your legs off to pay 4% instead of the 15% they paid at various points.

The point is, if you want things to be similar here to elsewhere, you need to swallow other things being different. Germany has a 15% charge for mandatory health insurance for example. The water charges are way higher in parts of Belgium to what they are here, as they are in France. There's an element of swings and roundabouts here and that's before you look at the fact that there was a 12 month moratorium on repossessions (except from investors whose tenants wound up getting messed around instead).

Which would you prefer - it to be easier for the banks to repossess in payment failure, or lower interest rates?

I agree with you generally but your examples about health insurance and water charges have zip to do with mortgage rates or housing markets.

lawred2

davo10 wrote: »

Banks don't borrow from the ECB at the "ECB rate", they borrow at a banking prime rate.

Nor was a tracker mortgage ever lent out at the ecb rate.

lawred2

[Deleted User] wrote: »

Don't forget that these rates are historically really really low. Nobody should have problems repaying such mortgages. If they do, think of what will happen if the rates rise by, say 3%, an entirely possible event in a few years....

My first mortgage here had rates in the mid teens....

Yeah but the principal was nothing like it would be now..

athtrasna

Mod note

Lawred2 and A_Sober_Paddy please remember that this is the accommodation and Property forum, not a place for political rants. Posts deleted.

lawred2

Wrong place maybe. Rant hardly

Calina

lawred2 wrote: »

I agree with you generally but your examples about health insurance and water charges have zip to do with mortgage rates or housing markets.

They do illustrate however that expecting things to be the same in countries with different business conditions is futile and here are a couple of other examples.

But ymmv. Fact remains we make it easier to borrow money and harder to repossess if that money isn't paid back. Net result, interest rates will be higher.