CB shows mortgage rates are higher and deposit rates are lower than Eurozone average

[Brendan Burgess]

Sarenco, we are not making any progress whatsoever here.

The MIR data for Ireland excluding renegotiations is a fair reflection of the rates available to new business. I think we are both agreed on that.

In the rest of the Eurozone, as far as I know, we don't have the bonkers situations of trackers where the rate was decided 8 years ago being included as new business. So the rate for the rest of the Eurozone, as its name suggests, does reflect new business. It includes people who have come off fixed rates to the current new business rate. So that does not distort the figures.

I am really surprised that you can't see that.

MIR framework is not designed to reflect the average rates that banks quote for "new business".

It is Sarenco, which is why it's called the "new business" rate.

The only comparable average figures include renegotiations - 3.22% for Ireland; 1.81% for the euro area.

As you helpfully pointed out:

There is no doubt that the volume of renegotiations present in the aggregated MIR series for Ireland is more pronounced than is the case for the euro area as a whole. Over the twelve months to December 2015, renegotiations averaged 61 per cent of all new loans to households for house purchase in Ireland. In contrast, the proportion of renegotiated loans in the euro area averaged just 36 per cent, over the same period.

So across the eurozone, 35% are renegotiated at market rates, whereas in Ireland 61% are renegotiated, many at rates negotiated 8 years ago, and you think these are comparable?

Sorry, but that makes no sense.

 

[Brendan Burgess]

"While some renegotiations, particularly in earlier years, may reflect repayment difficulties on behalf of the borrower, this does not appear to be true for the period December 2014 – December 2015. Over this period, renegotiations appear to largely reflect normal market activity, such as mortgage switching or moving from a variable to fixed interest rate contract."

This is ridiculously dishonest of the Central Bank. Don't fall for it.

"Some renegotiations may reflect repayment difficulties" - They are not allowed to include rates reduced because of repayment difficulties. That is the first thing. And the second thing is that they are not being upfront. They should spell it out: Due to our peculiar interpretation of the MIR rules, we are including cheap tracker mortgages as new business. If they said this, it would be less objectionable, but they won't spell it out, which is they are fooling so many people.

Not only do they use terminology to mislead you, it's patently untrue. The first statistics I can find for the correct new business rate excluding renegotiations is Feb 2015:

So one is 3.38% and the other is 4.2% and they say that they "appear to largely reflect normal market activity".

 

[Brendan Burgess]

Can I ask you one straight question Sarenco - Do you accept that the Central Bank has been deliberately misleading and continues to deliberately mislead people on the true rate for new mortgages in Ireland?

Brendan

 

[Sarenco]

Can I ask you one straight question Sarenco - Do you accept that the Central Bank has been deliberately misleading and continues to deliberately mislead people on the true rate for new mortgages in Ireland?

I have seen absolutely no evidence that the Central Bank has been deliberately misleading anybody.

On the other hand, I have seen ample evidence that you are trying to mislead people by comparing rates that are not comparable in order to advance your price fixing agenda.

Sorry but that's the truth of the matter.

 

[Sarenco]

Let's try it with charts.

Compare Chart 1 with Chart 3 in this document:

[broken link removed]

Chart 1 shows the weighted average interest rate on new loan agreements to households for house purchase in Ireland at end-December 2015. This rate falls by 33 basis points on average when renegotiations were included.

Chart 3 shows the equivalent figure for the euro area and shows that the weighted average interest rate falls by 9 basis points on average when renegotiations were included.

We know that the weighted average interest rate for renegotiated mortgages in Ireland was 3.03% in June, versus 3.21% in December 2015. The comparable figures for the euro area were 2.15% in June, versus 2.47% in December 2015. In other words, the impact of renegotiations in the euro area appears to have increased relative to the position in Ireland.

Taking account of those figures, my best estimate is that excluding renegotiations would increase the euro area new business floating rate figure from 1.81% to somewhere over 2.00%.

However, that's just a best estimate. The only rates we can definitely compare are the weighted average new business rate (including renegotiations) of 3.22% for Ireland versus 1.81% for the euro area as a whole.

 

[Brendan Burgess]

I have seen absolutely no evidence that the Central Bank has been deliberately misleading anybody.

OK, let me omit the word "deliberately". Do you accept that they have been and continue to mislead people on the true rates for new business in Ireland?

 

[Sarenco]

I can't speak for anybody else Brendan but I don't find the figures misleading.

Do you agree with my estimate that excluding renegotiations would increase the average euro area new business floating rate from 1.81% to somewhere north of 2.00%?

Or to put it another way, that the spread between the Irish and euro area new business rates (excluding renegotiations) at the end of June was around 1.5%.

 

[Brendan Burgess]

Sarenco

They are great charts and we are once again being in danger of being in violent disagreement.

Here are the rates at the end of June 2016

I have used the 0.9% adjustment for the Eurozone as of December 2015, as it does not seem to have changed much over the last year.

If you believe that I was deliberately misleading people about rates in the Eurozone, then you can accuse me of being guilty by 0.09%. I always said it was immaterial, and that, to me is immaterial.

By contrast, the Central Bank were misleading by 0.94% (4.2% - 3.26%) in January 2015, and probably by more before they started publishing the new business excluding re-negotiations.
(I must check these figures - I hadn't thought that the gap was as high as 0.94%??)

As far as I am concerned, that difference of 0.94%(?) is huge. They should have adjusted both figures if they had the data, but it did not suit them to do so.

They have rarely, if ever, explained the real cause: cheap tracker mortgages depressing the true rate.

Brendan

 

[Brendan Burgess]

I can't speak for anybody else Brendan but I don't find the figures misleading.

Hi Sarenco

Here are the January 2015 Retail Interest Rates

Almost every journalist reported faithfully that the interest rate for new loans was 3.26% when that average rate was lower than the cheapest rate available.

I find that misleading. I think it was deliberately misleading. But if you don't find it misleading, fair enough.

Brendan

 

[Brendan Burgess]

OK, I see that in October 2014, they were reporting a rate of 3.29% when I estimated the average rate to be about 4.5%. So they were out by about 1.1% by comparing the 3.29% rate to the 2.63% rate in the Eurozone.

I had forgotten that, at the time, one of their economists had admitted that it was distorted:

So the distortion is down to 0.2% (.3% in Ireland compared to 0.1% in the rest of the Eurozone).

My worry is that it will rise again if the Tracker Review cases are treated as new business.

Brendan

 

[Sarenco]

Sarenco
I have used the 0.9% adjustment for the Eurozone as of December 2015, as it does not seem to have changed much over the last year.

I wouldn't jump to that conclusion (I assume you mean an adjustment of 9bps rather than 90bps!).

The impact of including renegotiations certainly hasn't changed the Irish figure materially over the last six-months (33bps difference in December 2015 versus 34bps in June 2016).

However, the weighted average interest rate for renegotiated mortgages decreased by 32bps for the euro area as a whole over the last six months, versus a decrease of only 18bps in the comparable Irish figure.

As such, I would estimate that an adjustment in the order of ~20bps to the euro area figure might be more appropriate which would imply that the spread between the Irish and euro area new business rates (excluding renegotiations) at the end of June was closer to 1.5% than 1.75%.

The only thing we know for certain is that the spread between the Irish and euro area rates including renegotiations in June was 1.41% (and I appreciate that you take issue with certain inputs that make up the Irish figure).

 

[Sarenco]

To be fair to the Central Bank, their press releases are now heavily footnoted to highlight the fact that there are a number of factors that can lead to differences between MIR statistics and rates advertised by Irish banks (which they have published separately since December 2014).

They can hardly be held responsible for lazy journalists!