Complete list of suggestions to bring down mortgage rates

Brendan Burgess

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It would be useful to have a complete list of options, in roughly ascending order of intervention.

Option 1 - Do nothing. Allow the market to take its course.
Option 2 - The Central Bank Proposal Oblige the lenders to explain their Mortgage Rate Policy
Option 3 - The Equal Treatment Option - Lenders must make rates for new customers available to existing customers
Option 3A - Ban the 2% Cash Back and similar incentives which discriminate against existing customers or ban the clawback of such incentives if people later switch
Option 3B The SVR Model Lenders must quote an SVR and must quote all mortgages as a discount on the SVR. When they reduce rates, all customers would get the same rate reductions
Option 4 - The Protect the Captives Only Option - Let the market work for those who can switch, but protect those who can't. (I am not sure how Option 4 works in practice - it might be achieved through Option 5)
Option 5 - The Relative Rate Option - Set the maximum rate at no more than 33% above the average rate.
Option 6 - The Honohan Option - control rates for lenders not open to new business
Option 7 - The FF Option - Give the Central Bank the power to control rates in the event of a market failure
Option 8- The Sinn Féin Option - Apply the rules only to existing lenders or the Pillar Banks, so that new entrants would not be discouraged
Option 9 - The Fair Mortgage Rates Campaign Option - Set the maximum mortgage rate at 3% above the ECB rate but allow lenders to apply to the Central Bank for an exemption if they could justify it.
Option 10 - Set the maximum rate at ECB + 3% - no exceptions at all.
 
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Additional points which have been suggested which could complement some of the above Options

Additional 1 - allow lenders to repossess houses quickly
Additional 2. - A Switcher Code for Mortgages
Additional 3 - The ECB should take the Tracker Mortgages off the lenders' books
Additional 4 - Allow the lenders to reprice the trackers
Additional 5 - The lenders should spread the burden of boosting their profitability over all their customers, and not just the non-tracker mortgage holders.
Additional 6 - Separate out EBS from AIB free of trackers and bad mortgages
 
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Combination 1 - SVR Model,Relative Rate and Fair Mortgage Rates Campaign Combo

Lenders would quote an SVR.
All LTVs would be priced off this SVR
Incentives for new business banned.
Cap the maximum rate at 125% of the average SVR
but
allow the Central Bank to grant exemptions to the 125% rule

In practice...
Lenders would quote an SVR.
All LTVs would be priced off this SVR - for example, SVR =3.5% for 90% mortgages: 0.3% discount for 80%, and 1% discount for 1%.
Incentives for new business banned. So lender can't keep a high SVR but attract new business with a 2% discount
To attract new business, lender would have to offer a lower SVR. This brings the price down for existing customers.
Cap the maximum rate at 125% above the average SVR
The average SVR is 4%. Lenders could have SVRs up to 5%
This would allow sub-primes give out new business. They could quote an SVR of 4% but charge an additional 3% to reflect the higher risk nature of the loan
but
allow the Central Bank to grant exemptions to the 125% rule (Or allow the Central Bank set the relative cap?)
This would be needed in case some lender reduces their SVR to 1% which would bring down the average.
 
One obvious one is "Competition" or lack thereof of any lender coming into the market. All it would take is one we would see big movements.
 
If they set high SVRs they wouldn't get new business.

Could they set high SVRs and then give big discounts? I don't think that would work
 
I don't think so. But it's a very interesting comparison.

They have high SVRs and low rates for two or three years.

They fleece those who can't or won't shop around.

Maybe we would have to completely ban introductory rates?

Though I have less sympathy for those who can switch but don't if they get fleeced
 
They have high SVRs and low rates for two or three years.

The average SVR in the UK is currently around 4.5% but borrowers that are in a position to do so can fix for for 1 year @~1%, fix for 5 years @~2%, etc. If we had that kind of spread in rates, our SVRs would be 6%+!

I personally don't think that would be appropriate and hence my support for a (relative) statutory cap on mortgage rates.
 
One obvious one is "Competition" or lack thereof of any lender coming into the market. All it would take is one we would see big movements.
Hi Nordkapp the one we need is there but it's 7 months and waiting for the CB to authorise it for mortgage lending.
 
Re competition
Cormac Lucy suggested during the week splitting EBS off from AIB and then splitting AIB remainder in 2 - immediately create 2 new operators and boost competition.

Obviously something would have to be done about the NPLs but that's for someone with more time than me to think about.

Edit to add, there was 47bn in outstanding debt governed by SVR clauses at May 2015 per central bank report. A 2% reduction wipes out nearly 1 billion in profit - probably 50% of which (if not more) is due to the taxpayer through its shareholding in the banks.
 
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Hi Nordkapp the one we need is there but it's 7 months and waiting for the CB to authorise it for mortgage lending.

I'm sure if it was one of the larger providers or banks it would be quicker.
Perhaps someone to buy ACC who I believe still have their licence?
 
additional option - make it possible to use non-domestic bank

If banks are not profitable, why should a customer of a specific product (mortgage) be forced to prop it up. Put in banking fees etc if that is needed. That the burden is spread fairly.
 
Hi Dauhee

There isn't really any barrier to a non-domestic bank lending to Irish people to buy homes in Ireland. If they want to do that, they can. I don't think that they even have to beg the Central Bank for a license. But cross-border mortgages are rare because of the set-up required.

Brendan
 
If banks are not profitable, why should a customer of a specific product (mortgage) be forced to prop it up. Put in banking fees etc if that is needed. That the burden is spread fairly.

An interesting idea which I have added in as follows:

Additional 5 - The lenders should spread the burden of boosting their profitability over all their customers, and not just the non-tracker mortgage holders.

It could be argued that the variable rate mortgage holders are currently subsidising free or below cost current accounts for non-mortgage customers.
 
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