# Should the government tell banks what mortgage rates to charge?



## Brendan Burgess (10 Nov 2011)

_There are two other threads on this topic. Please try to post in the appropriate thread.
_

_ What can existing PTSB customers do about the 6.05% Standard Variable Rate?_
_ What is the SVR for existing customers? _
 


In a normally functioning market, the government should let the market decide interest rates. 

But the market is not functioning normally 


 The government has already intervened in the banking market by taking ownership or and/or guaranteeing deposits and bonds.
50% of borrowers are vulnerable to exploitation as they are in negative equity or arrears and so cannot switch
Due to the credit famine, even a borrower who is not in negative equity probably can't switch and so is vulnerable.
 The lenders have been told to reduce their loans to deposit ratios, so they are delighted to see borrowers leave and it seems that PTSB, in particular, have raised rates in an effort to encourage borrowers to switch.
 The Irish banks are finding it very difficult to attract deposits
The Irish government owns three of the biggest lenders, PTSB, AIB and EBS
 The Irish banks are accessing a lot of funding through the ECB at 1.25%
 So, although, in principle, the government should not be influencing mortgage rates, they do need to get involved to prevent predatory lending practices. 

*If there is a role for the government, they need to focus first on the banks which they own. *

The Irish government owns three lenders: 



|pre 3/11|post 3/11||Sources
ECB rate |1.5%|1.25%|-0.25%
Best variable deposit rate||3.5%|
AIB|3.25%|3.00%| |
EBS|4.8%|4.5%|-0.25%

PTSB|6.15%|5.9%|-0.25%|Reports from customers on AskaboutmoneyI am not convinced that the government should get involved at all, but if they do get involved, they need to resolve the issue whereby some citizens are paying their government a mortgage rate twice the rate which other citizens are paying.

If it was right for the government to force AIB to reduce their rate to 3%, then it would be right for them to force PTSB to reduce their rate to 3% also. 

*The government should not tell Bank of Ireland that 4% is too high, while PTSB is charging 5.9%*



|pre 3/11|post 3/11||Sources
BoI|4%||no decision yet|
Ulster Bank|4.95%|4.95%|no change
PTSB|6.15%|5.9%|-0.25%|Reports from customers on AskaboutmoneyThe government has told Bank of Ireland and Ulster Bank that they should reduce their rates.  But a government owned institution is charging 5.9% and they are under no pressure to reduce the rates. 
This makes no sense at all. The government has no moral ground  to make such a demand. 

*Mortgage lending has to be profitable to attract deposits*
AIB is now charging 3% on its mortgages as it was told to do so by the government.  
But they have also been told by the Central Bank to improve their loans to deposits ratio. 
And the government wants them to lend more. 

The minimum acceptable margin must be at least 1%. That means that the maximum AIB could pay its depositors would be 2% with a mortgage rate of 3%. It simply won't be able to attract deposits at this rate. 
Of course, AIB has a lot of ECB funding at 1.25%, but the ECB wants to end this as quickly as possible. And a lot of the ECB funded money is allocated to trackers which are priced at less than 1% above ECB.


*Mortgage rates have to be high enough to make it worth the bank's while giving out mortgages *
There is no activity in the market because there is so little lending. If the government forces lenders to lend unprofitably, they will not make any new loans.  

*Government interference will destroy any chance we have of foreign banks entering the Irish market*
The ideal thing for Ireland and the Irish mortgage market would be for a foreign institution to see that it was worth entering the Irish market for deposits and mortgages. 

The purchase of the government's stake in Bank of Ireland by a foreign consortium was a huge boost for the international image of Ireland. It also saved the Irish taxpayer from having to invest a lot more money. How do these investors feel now, when their bank is being told to charge a lower mortgage rate than the Irish owned banks? 

*And, of course, we want the state owned banks to be profitable so we can sell them 
*The government should not be a long-term owner of three banks. The objective is to sell them off as quickly as possible.  Telling AIB to set the mortgage rate at an unprofitable level will not help.

Potential foreign buyers would also be put off by any government regulation of market rates. 

*The government should not threaten the banks with legislation
*The Troika will presumably insist that the Irish banks be put on a profitable footing.

*The government should not bargain insolvency legislation for rate cuts *

According to this article by Charlie Weston, the government may be trading some changes in the insolvency legislation in exchange for rate cuts. 



> Mr Kenny said he expressed the "disappointment" of the Government to the banks but didn't mention any threat to cut bankers' pay at the meeting.
> 
> "The Government has got to consider the personal insolvency bill as to whether you include mortgages in that personal insolvency bill," Mr Kenny said.


The new insolvency legislation must include mortgage debt. The two issues are not connected and the government should not be linking them.


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## NAMAwinelake (11 Nov 2011)

Absolutely agree with Brendan that focus on latest ECB cut and whether banks will reduce rates to reflect it, is a red herring. Banks have been raising standard variable rates independent of ECB changes for well over a year leaving PTSB with an eye-watering 5.9% cf Bank of Ireland on 4%. 

But if I have a PTSB mortgage today and am paying 5.9% then if competition exists then I should be able to move my custom to Bank of Ireland. However chances are 1 in 10 that I am in some sort of default and I may be one of the 180-400,000 in negative equity, and even if not in negative equity I may need find an additional deposit if moving so as to get my loan to value to an acceptable level (70-92% as far as I can see). So moving my mortgage may not be at all practical which is a competition concern.

But PTSB is owned by the Irish state and like the pillars, depends on a daily Government guarantee to open its doors. So this is a State aid concern also - the Irish government is funding and supporting a bank through state aid including guarantees and yet competition in the market in which that bank operates is distorted.

On the bank's side they face increased cost of funds from the market and are trying to rebuild their balance sheets (higher interest = more profit = more capital) and that's what commercial enterprise should be doing.

Plainly though we need some refereeing of interest rates to take account of consumer and banks' needs. And unless that refereeing is enshrined in law it will tend to be ignored, particularly by the stronger components in the market. Either that or consumers need be able to move even if they have default or negative equity which will be a challenge but could the Govt legislate so that the original bank is exposed to the negative equity, or that all banks must accept transfer requests. Difficult, how do other countries prevent banks charging what they want on variable rate mortgages?

And throwing calumny now on certain banks for not passing on the latest ECB cut whilst others enjoy the fruit of previous increases independent of the ECB doesn't seem sensible.


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## NorfBank (11 Nov 2011)

NAMAwinelake said:


> And throwing calumny now on certain banks for not passing on the latest ECB cut whilst others enjoy the fruit of previous increases independent of the ECB doesn't seem sensible.


 
+ 1.

Ignoring legacy standard variable rates at PTSB and AIB as they are no longer available, a comparison of the non discounted variable rate on offer at the two banks for a homeowner with a loan to value of >80% is:

AIB : 3.24%
PTSB : 5.90%

Why have PTSB not been called up to explain this?

From experience, AIB's lending policy was/is a lot stricter than PTSB's so presumably there are a lot more people in arrears at PTSB than AIB yet these are the people who are being forced to pay a variable rate that is 2.66% higher than that available at another state owned bank.

As an aside AIB are now offering a variable rate of 2.84% for loan to values of less than 50% and we wonder why they are not lending? We can't expect the banks to be "open for business" if there is not enough margin to support the lending. 

[broken link removed]


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## Brendan Burgess (12 Nov 2011)

Given that the government or Central Bank may have a role in the setting of mortgage rates, what should an appropriate standard variable rate be? 

I asked a friend of mine in the UK for an insight into the UK market, and this is what he told me. 



> From what I gather, 90% mortgages are widely advertised, but the  underwriting is harsh, and many applications are turned down or scaled  back.  Probably a good thing!  Rates are typically 4% for a 3 year  period, reverting to the lender's SVR.  The catch is that SVR's are  currently high at around 4.25%, and I believe these are not  contractually linked to BBR.  This means the lender can set its own  lending margin, so borrowers have no certainty about future rate, either  in terms of BBR, or SVR.  In  practice, I think most of the lending is being done at lower LTV's,  mainly to people moving and with significant equity under their belts.



So 4.25% is 3.75% above British base rate.

Add the same margin to the ECB would give a rate of 5%. 

Brendan


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## Brendan Burgess (12 Nov 2011)

"Raising mortgage rates just makes the arrears situation worse and so is bad for the lenders anyway". 

I have heard this argued and it's just not correct for two reasons

*Firstly, *around 6% of mortgage holders are in arrears. It could be argued that  pushing up the interest rate will make little difference to them as they  can't pay it anyway and the bank can't collect it anyway. But the bank  will get more money out of the remaining 94% who are not in arrears. 

So it's clearly in the bank's interest to raise interest rates.  I am not justifying raising interest rates, I am simply debunking the argument that the banks lose out by raising interest rates.



*Secondly, *the most significant of the many factors which affect the levels of arrears is the level of unemployment. In general, if people are in jobs, they can pay their mortgage. If they lose their job, after using up their savings, they can pay very little of their mortgage. 

Other factors include


the extent of negative equity
the remaining term of the loan and whether it is interest only or not
the level of take-home pay which is influenced by government tax rates
the personal circumstances e.g. a couple splitting up, illness, etc
Raising mortgage rates will probably increase the levels of arrears, but not significantly.


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## onq (12 Nov 2011)

Brendan Burgess said:


> *Firstly, *around 6% of mortgage holders are in arrears....But the bank  will get more money out of the remaining 94% who are not in arrears.



Asking for more from people who can just barely pay their bills who may be already juggling their debts each month seems likely to push mortgages into arrears, not result in more money.
Its the same faulty logic that expects that putting up taxes automatically results in more revenue.
Beyond a certain point - it doesn't - its just a drag on economic activity.

In fact depending on how critical things become with the next budget, with stealth taxes, water charges, property taxes and the like, unregulated bank charges could be the final straw that puts huge swathes of people into debt.

And the banks excuse? - "we were told to become profitable as soon as we can"
Fine - find a way to do it without putting pressure on a broken sector of the market.
Provide mortgages so that the market can recover, not continue to spiral down for lack of demand.

Find other markets in which to trade.
Try to *do* something to earn your outrageous salaries!
Don't just sit there flicking the "interest" counter another point higher and call it "a days work" or a "strategy"!

Because its neither.

Its quite certain the PTSB needs to be called to account and the market investigated to expose the lack of competition overall and the restrictive effect of anti-competitive measures.

A "free market" it certainly isn't.


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## Brendan Burgess (13 Nov 2011)

> Asking for more from people who can just barely pay their bills who may  be already juggling their debts each month seems likely to push  mortgages into arrears, not result in more money.
> 
> Its the same faulty logic that expects that putting up taxes automatically results in more revenue.



Hi Onq

You are making the same reasoning mistake as the others which is why I wrote this piece. 

You are looking at the 6% and maybe double that who are in trouble.  Putting up the rates will just make things worse for this, around 10%, and the bank probably won't get any more from them.

But the rate is increased for everyone, so the other 90% of mortgage customers will pay more so the bank is much better off.

Brendan


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## onq (13 Nov 2011)

Hi Brendan,

You seem to be assuming that all the 90% can pay more - I don't believe that this is so.
I believe that a proportion of the 90% are very close to the edge, and any rise may tip them over.
Therefore I'm afraid you may not be talking about making matters worse for 10% and getting more from 90%.

You may be talking about 

- making matters intolerable for 5%
- making matters worse for 5%
- putting an additional 10-20% into arrears
- getting a marginal increase from the remaining 70-80%

And losing revenue overall.

There don't seem to be hard figures to back either of us up.
There are the usual vague guesstimates by economists and financial gurus.
Thus there will be those in government who may risk taking a punt on NOT regulating rates.

And if I'm right, we will spiral into recession and we may see this government having a very short shelf life.


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## Brendan Burgess (13 Nov 2011)

> - making matters intolerable for 5%
> - making matters worse for 5%
> - putting an additional 10-20% into arrears
> - getting a marginal increase from the remaining 70-80%
> ...



Onq - that is too big a jump of reasoning. 

It won't make any difference for a small group who will/should default on their mortgages anyway.  The bank will charge a bit more and then write off a bit more, so it won't affect the bank. 

It will put others into arrears who will eventually pay it anyway. 

There will be only a very few cases where the banks lose money. These will be people who will give up as a result of the increase.

Brendan


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## Brendan Burgess (14 Nov 2011)

Good article by John McManus in today's Business Opinion
[broken link removed]
_[broken link removed]


To all important outside eyes, it clearly looks as though the AIB  board was forced into an about-turn by the Government which was feeling  the heat as the banks acted in a fashion entirely consistent with the  Government’s own banking policy. This policy’s central objective is to  repair the banks’ balance sheets to a level where they can stand on  their own and attract outside investors.


The paradox is that AIB  probably had the best case for not passing on the rate cut, as it has  been slow to pass on hikes. Bank of Ireland can also make a case for not  passing on cuts because it is not the most expensive in the market,  even after the other banks have cut.


Presumably at some point the Government will see the downside to ordering the banks around,

...
The Government’s response to this self-created and utterly predictable  problem has been to try and have its cake and eat it, which all sounds  very like the Fianna Fáil approach to economics._


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## John1 (14 Nov 2011)

It is unacceptable that one government controlled bank charges a standard variable rate of 3% and another government controlled bank charges a standard variable rate of 5.9%. If the Regulator cannot resolve this issue through his existing regulatory powers or the Government cannot resolve this situation through direct dialogue with the banks then unfortunately legislation is required.

I also find it unbelievable that the customers of PTSB who have these standard variable rate mortgages are not making their voices heard in relation to this very unfair situation.


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## Fiskar (14 Nov 2011)

Agree with you completely, concerned PTSB mortgage holders need to get the finger out and post here with the their rates and experiences.
Personnaly I have contacted my local TD to make representations along with links to posts here, contacted primetime with links to posts here and those new posts that have appeared in the last day or so.

Most of us coming off the 5 year fixed are now only encountering the issue and due to LTV and Neg equity we are stuck with this lender of last resort.PTSB have well over 40% of the mortgage market, no wonder arrears with mortgage holders are increasing, with the budget due, there won't be two pennys to rub together.
So come on, lets raise the profile of this issue and if it requires regulation then so be it. PTSB are acting like loan sharks, sub prime would be cheaper.


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## onq (14 Nov 2011)

Brendan Burgess said:


> Onq - that is too big a jump of reasoning.
> 
> It won't make any difference for a small group who will/should default on their mortgages anyway.  The bank will charge a bit more and then write off a bit more, so it won't affect the bank.
> 
> It will put others into arrears who will eventually pay it anyway.




I said I was engaging in speculation on the figures.
I have no hard figures to back up my comments.

Then again, I'm not sure you do either.
So in fact we may both be jumping.



> There will be only a very few cases where the banks lose money. These  will be people who will give up as a result of the increase.


The possibility that the bank may lose money isn't bothering me as much as the plight of those who will "give up" as a result of the increase.
Given the amount of money that we have already put into the banks I think its appropriate that they should feel a little pain.
I don't think anyone else should be put through the wringer to make a small increase on their balance sheet.
Those two little words - "give up" - can mean a whole world of pain for a family.


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## thedaras (14 Nov 2011)

Hi, I have posted this in another thread,but I think it should be here,so mods feel free to delete it from here or the other thread.

thedaras





> I think the biggest issue for those who are with the PTSB is that they cant switch to another lender.(or only in very limited circumstances )
> In any other time,when you had a mortgage and felt the rates were too high,you had the option to move..in other words competition for the lender.
> However now ,the situation is that people cannot move and are therefore stuck with PTSB,and they in turn can charge what they like.
> 
> ...


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## Brendan Burgess (14 Nov 2011)

[broken link removed]

according to Jonathan McMahon of the Central Bank



> Irish Central Bank regulation of the interest rates charged by  lenders "would not be a good policy outcome", Jonathan McMahon, the  bank's assistant director general for financial institutions, has said.
> 
> 
> "We  can think of lots of very good reasons why regulation of interest rates  would not be a good policy outcome," said Mr McMahon said today. "Much  better could be done through the process of supervisory interventions."


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## Sunny (15 Nov 2011)

Elderfield is right. A policy of a Central Bank interfering in a banks ability to reprice their loan book is completely wrong. He is also right that there are competition concerns about being people being stuck with one lender and not being able to shop around for the best deal but I am not sure how they are going to resolve this through either regulation or competition law.
As for different banks charging different rates, well no two banks are same. They don't have the same loan books, they don't have the same funding mix, they don't have the same funding costs, they don't have the same mix between mortgage types etc etc. There is no evidence to suggest that PTSB (as large as their rate may seem compared to the others) are engaged in profiteering. As taxpayers, we want profitable banks or at least banks that aren't making losses.


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## onq (15 Nov 2011)

Elderfield's original position was wrong.

PTSB are clearly profiteering and will continue to do so as long as we allow them to.
Profit chasing is what has gotten us into this mess - so its past time to put a brake on the PTSB.
The myth of the self-regulating free market is broken and needs to be eviscerated and dealt with finally.
It is clear that without any regulation capitalists - without conscience or an awareness of society's well-being - will chase profits.



> A policy of a Central Bank interfering in a banks ability to reprice their loan book is completely wrong


The subject is their interest rate, not their loan book - please let's stay on topic, because this is not just an important discussion.
It is seminal to admitting what went wrong with the banks and the wider capitalist economy and essential that fair and balanced regulation is brought in.
Chasing profits is what distorted the banking system in the first place - moving it from an industry that lent prudently to one that inanely chased market share and share price.
The wages for that paradigm shift was a collapse in share price and bankrupt banks that should have all gone to the wall in a true capitalist society, but instead relied on a Welfare State Bailout.

Let us not pander to vested interests whinging because the people who bailed them out are unwilling to allow them run wild and profiteer a second time around, doing yet MORE structural damage to a faltering recovery.
Such people - and the PTSB management - need to be put in a room for a couple of years and the keys thrown away.
With their damaging policies put on ice until the economy makes some sort of attempt to rise, we may prosper.


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## Sunny (15 Nov 2011)

onq said:


> They are clearly profiteering and will continue to do so as long as we allow them to.
> 
> They myth of the self-regulating free market is broken and needs to be eviscerated and dealt with finally.
> 
> ...


 
Show me the results that show they are 'clearly profiteering'. What is their interest margin according to their most recent results? They are currently offering roughly 3-5% on deposits.


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## onq (15 Nov 2011)

The old 

"Your lack of knowledge on other things negates your argument" riposte?

Sorry, but if other banks - more heavily debt can struggle along on lesser rates then PTSB operating at the same time in the same market can either follow suit or rearrange their internals to allow them to follow suit.

Anyone whose ever done a marketing degree will tell you that.


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## onq (15 Nov 2011)

Citing their deposit rates is a non-argument.
(handbag out) You show me that they _aren't_ profiteering!

I'm not interested in what they CLAIM they'll give to people with money.
I'm interested in what we KNOW they're taking from people some of whom are financially distressed.


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## Sunny (15 Nov 2011)

onq said:


> Elderfield's original position was wrong.
> 
> PTSB are clearly profiteering and will continue to do so as long as we allow them to.
> Profit chasing is what has gotten us into this mess - so its past time to put a brake on the PTSB.
> ...


 
Their loan book is completely relevant to the discussion. One of the biggest reasons we got into this crisis was the mis-pricing of risk and despite that we now have people saying that banks are profiteering because they charge higher interest rates than their competitors without knowing anything about it. 

The regulator obviously has competition concerns and justifiably so but to suggest that every bank should charge the same rate or automatically cut/increase rates depsite having different risk and costs on their books is ridiculous.


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## Sunny (15 Nov 2011)

onq said:


> The old
> 
> "Your lack of knowledge on other things negates your argument" riposte?
> 
> ...


 


onq said:


> Citing their deposit rates is a non-argument.
> (handbag out) You show me that they _aren't_ profiteering!
> 
> I'm not interested in what they CLAIM they'll give to people with money.
> I'm interested in what we KNOW they're taking from people some of whom are financially distressed.


 
I give up. You are in LOS territory now. I am not the one making claims of profiteering so I don't have to back enything up. I am not even saying they aren't. But show me the evidence that they are.

And you think people with marketing degrees are involved in pricing loan books taking into account funding costs, risk, capital costs, operating expenses etc etc...


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## Sunny (15 Nov 2011)

Last observation on this. According to Moodys, the net interest margin for the three main Irish banks at the end of 2010 were

AIB: 1.5%
BOI: 1.4%
ILP: 0.4%

These figures don't explain everything but they are a useful indicator. They do explain why PTSB are under pressure to have higher interest rates on their loan book than the others. Maybe 5.9% or whatever it is is too high but I don't know the details.


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## Brendan Burgess (15 Nov 2011)

Wilbur Ross the owner of 35% of Bank of Ireland has [broken link removed]whey they are not passing on interest rate cuts.



> Mr Ross, who owns 9 per cent of Bank of Ireland, said late yesterday  that the lender's high funding costs made it difficult to pass on the  ECB rate cut.
> 
> "I can assure you that Richie Boucher is well aware of the need for  responsible pricing of loans and also is aware that lower rates make it  easier for borrowers to remain current in their payments," US-based Ross  said in response to questions emailed by Reuters.
> 
> ...


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## thedaras (15 Nov 2011)

Sunny said:


> The regulator obviously has competition concerns and justifiably so but to suggest that every bank should charge the same rate or automatically cut/increase rates depsite having different risk and costs on their books is ridiculous.



Do you not think that the real problem is that those who want to go to another lender with much lower rates,are unable too?
PTSB are free to charge what they want,but people who have mortgages with them are not free to move lenders.


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## NorfBank (15 Nov 2011)

thedaras said:


> Do you not think that the real problem is that those who want to go to another lender with much lower rates,are unable too?
> PTSB are free to charge what they want,but people who have mortgages with them are not free to move lenders.


 
Johnny has a credit card with PTSB, it's charging him 17.3% on purchases. AIB have a credit card charging 13.6% on purchases. He has 20k purchases (it's the only credit he could use to keep the business afloat) outstanding on the credit card but he had to close the business. He am now unemployed so he cannot switch to AIB.

Seeing as we own PTSB can the government intervene and force it to lower credit card rates as well as mortgage rates?


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## Purple (15 Nov 2011)

NorfBank said:


> Johnny has a credit card with PTSB, it's charging him 17.3% on purchases. AIB have a credit card charging 13.6% on purchases. He has 20k purchases (it's the only credit he could use to keep the business afloat) outstanding on the credit card but he had to close the business. He am now unemployed so he cannot switch to AIB.
> 
> Seeing as we own PTSB can the government intervene and force PTSB to lower credit card rates as well as mortgage rates?



The government can force them to do anything they like through threat and bullying but the net result will be the tax payer footing the bill. We are now subsidising AIB mortgage holders to the tune of €20-€30 million on top of the money that we've pumped into the banks already. At what stage do we decide that the banks should make a profit and start to give us our money back?


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## thedaras (15 Nov 2011)

Purple and NorBank, I see your points.
However ,the government HAVE intervened,but for the wrong reason as Brendan pointed out..


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## Sunny (15 Nov 2011)

thedaras said:


> Do you not think that the real problem is that those who want to go to another lender with much lower rates,are unable too?
> PTSB are free to charge what they want,but people who have mortgages with them are not free to move lenders.


 
That is what Elderfield is talking about when he says there are competition concerns because of the dysfunctional market.


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## ajapale (15 Nov 2011)

Back in early 2010 I made the following suggestion: Tracker Good! SVR Bad! Banks should be compelled to offer Trackers.

I believe banks should be compelled to offer fixed % margin tracker mortgage products. The would be free to charge whatever +x% rate they negotiated with the consumer.

This is not the same as a trackers set at an unsustainably low margin or against an inappropriate index.

Further I believe the practice of offering very short term promotional rates should be outlawed.

Banks should also be compelled to offer long term fixed rate mortgates for periods up to the life of the mortgate.


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## thedaras (15 Nov 2011)

This is taken from the above highlighted thread;
Brendan Burgess 





> We should focus on making it even easier to switch mortgages, so that if your bank does not pass on the interest rate cut, then you can switch to another bank.



To me,it seems that in a free market,you are free to get your product elsewhere.Now its only those who are in a financially very strong position,who are not in negative equity etc,are now free to move their mortgage from PTSB.


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## Sunny (15 Nov 2011)

thedaras said:


> This is taken from the above highlighted thread;
> Brendan Burgess
> 
> To me,it seems that in a free market,you are free to get your product elsewhere.Now its only those who are in a financially very strong position,who are not in negative equity etc,are now free to move their mortgage from PTSB.


 
It is a free market but you can't expect banks to take on mortgage holders who are in arrears or in huge negative equity and increase the risk on their own balance sheet (and then probably not get paid properly for it). That is why the market is dysfunctional.

I am all for protecting people who are stuck with a lender to make sure they are not exploited but I honestly have no idea how they do it. I do know, it's not to be done by dictating the price the banks charge. Imagine the uproar if the Government ordered the banks to cut their deposit rates to match the ECB rate.


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## NorfBank (15 Nov 2011)

Sunny said:


> Imagine the uproar if the Government ordered the banks to cut their deposit rates to match the ECB rate.


 
or to order new valuations on properties to see if they still fall under the LTV criteria for their trackers.

Be careful what you wish for..


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## onq (15 Nov 2011)

Brendan Burgess said:


> Wilbur Ross the owner of 35% of Bank of Ireland has [broken link removed]whey they are not passing on interest rate cuts.



Does he own 35% or the 9% in the article you quoted.

Either way - all he says in the piece is -

"We know what you want but you're not getting it".

And the article trots out the old canard about low interest rates hampering a return to profit.

Totally ignoring the lack of inter bank lending and poor rates of investment loans to viable businesses seems to be part of Mr. Ross current myopic disposition.


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## onq (15 Nov 2011)

Sunny said:


> It is a free market but you can't expect banks to take on mortgage holders who are in arrears or in huge negative equity and increase the risk on their own balance sheet (and then probably not get paid properly for it). That is why the market is dysfunctional.


<sarcasm>
Far be it for anyone to suggest that people who were negligently advised on financial products should look to the sector that supplied the incompetent advice for succour - perish the thought that any company - an entity that touts "personhood rights" in the United States - should be introduced to the ethics of responsibility or consequences. 
</sarcasm>


> I am all for protecting people who are stuck with a lender to make sure they are not exploited but I honestly have no idea how they do it.


I'll take that as a huge positive comment - well done for stating it.



> I do know, it's not to be done by dictating the price the banks charge. Imagine the uproar if the Government ordered the banks to cut their deposit rates to match the ECB rate.


I don't think dictation is the way forward and I am wary of making broad sweeping laws.
Situations like this need human intervention and human judgement, not a set of Roberts Rules of Conduct.
Which is why I said it should be left to the Regulator to call it, and to review it monthly or weekly if necessary.


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## ClubMan (15 Nov 2011)

onq said:


> does he own 35% or the 9% in the article you quoted.


9%.


> mr ross, who owns 9 per cent of bank of ireland
> 
> ...
> 
> Mr ross and other north american investors spent €1.1 billion on bank of  ireland over the summer giving them a combined stake of 35 per cent


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## thedaras (15 Nov 2011)

What about this from the Bold "Sindo ";
http://www.independent.ie/national-...-should-step-aside-2934307.html?service=Print

Taken from the above,here are the rates quoted in the article;


> Permanent TSB has the most expensive variable rate at 5.44pc while Ulster Bank has the second highest at almost 5pc. In contrast, most tracker rates are around 2.25pc.


And this;


> In October Mr Elderfield said: "If the banks continue to act in a way which is so damaging to customers and *which appears to take advantage of the current dysfunctional competitive environment*, it seems they are courting the risk of a public policy response involving powers to impose direct restrictions on their rate setting capacity by the competition or financial regulatory authorities." Mr Kenny responded to the speech saying that if the regulator came to the Government seeking assistance, he would "certainly be prepared to engage with him with a view to increasing his powers of authority".
> 
> Mr Elderfield's deputy Jonathan McMahon yesterday dismissed the idea that the Central Bank should have a role in telling banks to lower mortgage rates.
> 
> ...


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## onq (15 Nov 2011)

ajapale said:


> Back in early 2010 I made the following suggestion: Tracker Good! SVR Bad! Banks should be compelled to offer Trackers.
> 
> I believe banks should be compelled to offer fixed % margin tracker mortgage products. The would be free to charge whatever +x% rate they negotiated with the consumer.
> 
> This is not the same as a trackers set at an unsustainably low margin or against an inappropriate index.


I think what people need now is surety of payment and a reasonable amount coming off the mortgage not seeing it swallowed up in interest.

This is the opposite of interest rate hikes, which is where the bailed out bankers and their investors want this to go - the implied threat is "if it doesn't, don't expect any more investment".
Their strategy not about returning to profits at all, its about ensuring the people continued in indentured servitude paying off loans that are growing.
At some point a variation of bad debt structure will need to be put on some mortgages to allow them to be paid off.


> Further I believe the practice of offering very short term promotional rates should be outlawed.


This is basically the sub-prime "trap" - a totally unsustainable model after the fist upward hike - a honey trap for the unwary - a form of theft from the utterly gullible by the unethical.


> Banks should also be compelled to offer long term fixed rate mortgates for periods up to the life of the mortgate.


Why not expand thsi to consider multi-generational mortgages - don't Switzerland offer 75 year mortgages - i.e. 3 x 25 or three generation mortgages?

Managed by a family trust fund or if necessary a company limited by guarantee I don't see why it cannot work.
The mortgager should be able to assign the interest to allow a form of selling if required.
Surprised no one has considered this option (apart from me).
After all, a mortage is only an extended loan term...


Of course, what's really shaken the banking sector to its core is that  mortgages are secured on premises or land holdings the value of which  "can rise as well as fall".
For at least a generation, Japan's deflation notwithstanding, part of the portfolios of many European  investment banks and pension funds have been based on the rising value of  property.


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## Brendan Burgess (17 Nov 2011)

I have updated an earlier post with the following

Given that the government or Central Bank may have a role in the setting  of mortgage rates, what should an appropriate standard variable rate  be? 

I asked a friend of mine in the UK for an insight into the UK market, and this is what he told me. 



> From what I gather, 90% mortgages are widely advertised, but the  underwriting is harsh, and many applications are turned down or scaled  back.  Probably a good thing!  Rates are typically 4% for a 3 year  period, reverting to the lender's SVR.  The catch is that SVR's are  currently high at around 4.25%, and I believe these are not  contractually linked to BBR.  This means the lender can set its own  lending margin, so borrowers have no certainty about future rate, either  in terms of BBR, or SVR.  In  practice, I think most of the lending is being done at lower LTV's,  mainly to people moving and with significant equity under their belts.



So 4.25% is 3.75% above British base rate.

Add the same margin to the ECB would give a rate of 5%. 

Brendan


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## thedaras (17 Nov 2011)

Heres an interesting piece; Government unlikely to come up with legislation forcing lenders to pass on ecb rate cuts:
http://blogs.myhome.ie/2011/11/17/g...ion-forcing-lenders-to-pass-on-ecb-rate-cuts/


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## Brendan Burgess (31 Mar 2015)

Another really interesting thread from a few years ago. 

Brendan


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