Can we encourage Eurozone banks to enter the Irish mortgage market?

There is no reason why a German or French bank would lend to its customers at 2. 64% when they could be making far more profits lending to Irish customers at 4.5%. They presumably believe the Central Bank figures that the additional rate in Ireland is only 0.5% so it's not worth bothering about.

You need to remember that Basel III will really start to bite from the 1st of Jan 2015 and it is widely acknowledged that all banks will struggle to meet the liquidity ratios for the next several years (full compliance is required by 2019). In this respect mortgage type instruments are at best considered a Level 2B asset and are subject to a 25% haircut. So they are not a great choice to hold in the circumstances.

Consequently financing the mortgage industry is going to be an issue. I would expect Irish banks will want to reduce their exposure and other European banks will not be too excited about getting involved.
 
Hi Jim

That is a good argument for German banks to reduce their total mortgage book. But if they are going to write new mortgages, why not write them at 4.5% in Ireland instead of 2.6% in Germany?
 
Perhaps the first question that must be asked is why foreign lenders are heading the opposite direction and fleeing the country ( NIB / Danske, ACC / Rabo, RBS trying to divest itself of Ulster). Why have they decided they don't want to operate in post crash Ireland? Did they look at the unaddressed legal loopholes, the moratoriums on repossessions and the knock-on effect on arrears levels, and decide Ireland wasn't a serious place to do mortgage business?
 
Hi Jim

That is a good argument for German banks to reduce their total mortgage book. But if they are going to write new mortgages, why not write them at 4.5% in Ireland instead of 2.6% in Germany?

For most of these banks, mortgages is part of the business, but not the business as it seems to be for Irish banks and the German banks are seeking to maintain the business rather than to grow it. Remember any funds applied to mortgages will suffer a 25% reduction in liquidity after 1st Jan. next when banks are required to meet at least 60% of the liquidity ratio.

As a general rule at least in the Euroland countries, banks tend to only do mortgages in their home country, since getting into the business is not so straight forward. Also in Ireland's case we have common law, while most of Europe has civil law so it is a very different situation. But that said, even around Basel where everything is very similar, it is almost impossible to find a bank willing to consider a cross border mortgage even when the border is just a couple of hundred meters down the road.
 
I thought that this topic deserved a thread of its own.

Two Eurozone lenders have stopped mortgage lending in Ireland:

ACC Bank (owned by Rabo)
Rabo provided mortgages in Ireland through ACC. They handed back their banking license in 2014. Rabo continues to operate in Ireland, lending to the Agri sector and managing personal savings and investments.

The average variable rate in the Netherlands is 2.78%. Why have they stopped lending here at 4.5%? I presume that they were just so badly burned by their losses in Ireland, that they want nothing to do with the mortgage market.

Danske Bank
Danske stopped doing mortgages some time ago. In October 2013, they announced the closure of their personal and business banking.


In contrast, KBC, which also had big losses, is aggressively pushing for new mortgage business. It is opening new offices and has the cheapest rate in the market. As the mortgage rates here are at least 1.5% higher than in Belgium, this seems to make sense to me.


There is about €47 billion in variable rate mortgages in Ireland.



Surely it would be profitable for a niche lender to sell a very conservative product in Ireland:


  • Maximum loan to value: 50%
  • Maximum Income to Repayments ratio: 2
  • Interest rate: 3.5%
This would still be a higher rate than the average in any Eurozone country apart from Cyprus.



The cost of deposits raised in Ireland would be about 1.5% leaving them with a good margin of 2%.


They would attract a lot of switcher business.
 
Dilosk has acquired ICS Building Society from Bank of Ireland, so they obviously see potential in the market.

http://dilosk.com/news-2/

Dilosk plans to grow its mortgage business in Ireland by offering new residential mortgage loans. The Company will offer mortgages to borrowers seeking to purchase or refinance residential property with a particular focus on residential investment properties (i.e. Buy-to-Let) located in the Republic of Ireland. Dilosk will offer borrowers an alternative source of financing to the traditional banking market.
Anyone know who is behind Dilosk? I seem to remember hearing that they have funded the loan book with a loan from Bank of Ireland.
 
The difficulty that I see for foreign lenders coming into the Irish market is the difficulties in getting the mortgage paid when problems arise for the borrower.
The legal system is costly and cumbersome.
There are quite a number of delaying tactics that can be used before you get to repossession.
Repossession could take around 6 years and a lot of costs in getting there.
If they go for a niche market they could find others chasing the same market which would cut their margins.
It maybe the case that we have relatively low repossessions in comparison to other countries with similar mortgage problems but borrowers will pay an extra premium on their rate for this.
There are always consequences for actions or inactions.
 
Shocking as this may sound, banks do not have to lend out money to make a profit!

There is a safer model - you convince clients to place their money under management with you asset management group rather than on deposit. The result is no risky loan book to deal with and a nice management fee instead. That is why as an investor in middle European banks one needs to pay great attention to two factors - AUM: assets under management and NNM: net new money - because that is where most of the profits come from - not consumer lending.

You still have to do a certain amount of lending in the domestic market in order to provide full services to your clients, but consumer lending is not the primary way of generating income for many banks.
 
The difficulty that I see for foreign lenders coming into the Irish market is the difficulties in getting the mortgage paid when problems arise for the borrower.
The legal system is costly and cumbersome.
There are quite a number of delaying tactics that can be used before you get to repossession.
Repossession could take around 6 years and a lot of costs in getting there.
If they go for a niche market they could find others chasing the same market which would cut their margins.
It maybe the case that we have relatively low repossessions in comparison to other countries with similar mortgage problems but borrowers will pay an extra premium on their rate for this.
There are always consequences for actions or inactions.

+1. Two stern warnings we received from the Troika were that our repossessions regime needed to be fixed, and that our legal system was too complicated and too expensive. Contrary to perception in some quarters, I believe those warnings were for the good of our economic health, not to deprive us of our legal and economic sovereignty. Lack of competition in the mortgage market is exactly the sort of consequence we can expect from our foot dragging approach to reform.
 
Back
Top