Do Irish banks want business?

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NoRegretsCoyote

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A friend of mine (Irish) and his wife (not Irish) live and work in Brussels and have no plans to move. They rent in Brussels and aren't in a hurry to buy, neither has ever owned property before.

Anyway, an opportunity has come up via family to purchase a house back home which they would let out. They would need about a 70% mortgage. House is in a regional town but with solid demand with a good yield. It's pretty good tax-wise as well as they don't have other Irish income.

So my friend calls up BoI. Bear in mind he still banks with him and has his (six-figure) salary paid into his BoI account. BoI tell him that they simply do not give mortgages to anyone resident outside Ireland, no matter what the circumstances!

He calls up AIB. They says they'll do business, but a BTL variable rate of 4.8% or a fixed rate of 5.5%.

He is still keen on the whole project but on the edge of walking away. A Belgian bank will lend on a Belgian property at something below 2% in the same circumstances apparently, and he just can't see why he should pay three times as much in Ireland.


To me it just seems bizarre that Irish banks are pricing themselves out of this business. LTV is 70%, rent would cover mortgage from day one, and they have no other debts and high incomes in euros. I know banks did a lot of silly stuff pre-2009, but this seems pretty low risk to me.

What is going on?
 
Bankers are as incompetent now as they were then.

Then the fashion was to take on business with no understanding of the risk, today the fashion is to avoid categories of business that are deemed risky with no understanding of risk at an individual case level.

Banks have been deliberately recruiting cheap people for the last 20 years, people with no skills nor much ambition.

They have then been training them not to understand the business or the customer just to do as they are told.

Decisions on risk are take at a bank level. They have decided that lending to non resident borrowers is risky, and in general I am sure that is true. In that sense the banks knows its business.

However they don't employ anyone with the authority to look at any individual case and made a decision based on the merits or otherwise of that case. The banks believe that if they allowed individual managers make individual decisions the results on average would be worse than forcing all managers to implement bank level rules with no exceptions.
 
Your friend is asking for a loan for a business. Without a proper business plan they won't do it. It may seem great to you now but how many businesses have folded over the years. The fact that he doesn't work in Ireland makes it even harder for them to chase him if something goes wrong. Prudent business imo something the banks did badly in the last 25 years.
 
Did he check whether he can get a mortgage from a Belgian bank? Some continental banks offer mortages for properties in other countries. No harm in asking.
 
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cremeegg said:
Bankers are as incompetent now as they were then.
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Funny,

I would say that they are even more incompetent now, for the reasons that you've outlined and one more..

Having let the lunatics take over the asylums, they haven't managed to get them back into their padded cells yet.

The issues that you've mentioned won't get fixed as long as the current group of people are running the Banks. Sure, they'll say sorry for the mistakes of their predessors a lot, but they'll do nothing to improve banking, just cut costs by trying to replace people with machines.
 
RedOnion said:
Risk weighted assets. Plus it's a tiny market.
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I get this. And I don't.

I know banks have to calibrate these things on historical patterns. And BTL mortgages in Ireland 2003-2009 have pretty astonishing default rates. Non-residents probably even more.

But there is Central Bank research that I'm too lazy to dig out that shows a big structural break in the performance of mortgages originating from about 2010 onwards.

At what point do banks start updating their models?

tomdublin said:
Did he check whether he can get a mortgage from a Belgian bank? Some continental banks offer mortages for properties in other countries. No harm in asking.
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Yes, but only if he has a mortgage on a Belgian property, with a low enough LTV.
 
NoRegretsCoyote said:
At what point do banks start updating their models?
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I'll be honest here; I'm really not close enough to the detail. And a little knowledge is a dangerous thing!

If you look at the standardised approach, for 60-80% LTV, a PDH mortgage has c 35% risk weight whereas a BTL has 90. That's a rough guide.
I haven't seen any details on the Irish banks IRB models for BTL. It's a relatively small part of their new lending so not something I've seen analysts focus on.
 
RWA and incompetent bankers?

There is a more straightforward answer - what does the bank do if the borrower stops paying? They have to initially chase the borrower in the courts. Your mate doesn't live here so getting an order against them is incredibly expensive (or implmenting an Irish order).

There are definitiely capital considerations in questions like this but they are usually incorporated into general lending policies and rates - but the first question any competent banker should ask is "how do I get my money back if it goes wrong"
 
EmmDee said:
There is a more straightforward answer - what does the bank do if the borrower stops paying?
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It's a BTL. You appoint a receiver and collect the rent. Then sell the property and pay off the loan.
It's not like the borrower can move the house to Belgium.

Capital requirements are the reason that AIB will charge between 4.8 & 5.5% for this. Regardless of where the borrower lives.
 
RedOnion said:
You appoint a receiver and collect the rent. Then sell the property and pay off the loan.
It's not like the borrower can move the house to Belgium.
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Before that you have to engage the borrower. You have to serve notice. Do you have to lodge any Irish court judegment in Belgium? I don't know, you probably don't and I'm pretty sure the banker doesn't. There is also the question of whether selling a banking product to a resident in Belgium is considered by the Belgian central bank "offering banking products" in Belgium - in which case they will need to go through the formal process of notifying the regulator of their intention to offer cross border services into Belgium which will requre them to comply with Belgian consumer protection laws - and have Belgian compliance knowledge.

Cross jurisdictional transactions are a nightmare if you don't have legal advice and access to both jurisdictions - and is a primary reason a bank won't enter into one.

I sell banking products across jurisdictions and I have to refresh legal advice for every juristiction every year - and that is for a business that isn't considered offering services in those jurisdiction and doesn't involve retail customers.

At the very least - this isn't a question of competence
 
Guys, I am confused by this.

Red - are you saying that an Irish bank will charge the same rate on a buy to let, whether the borrower lives in Dublin or Brussels?

I would have thought that it would be more difficult to recover a loan if the borrower were living abroad. I have been in the courts and the lenders often have to report that they can't find the borrower and believe that he is abroad.

I appreciate that they can appoint a Receiver, but that doesn't seem that easy, given the high arrears rate in Buy to lets.

Brendan
 
Brendan Burgess said:
Red - are you saying that an Irish bank will charge the same rate on a buy to let, whether the borrower lives in Dublin or Brussels?
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Hi Brendan,

If a bank accepts the business, it's at the same interest rate regardless of where the borrower is living. AIB is currently the only mainstream bank* that will lend to non residents in the normal course of business, since BOI pulled out of the market. But it might be at a different maximum LTV.

*PTSB advertise that they lend, but I don't know if they are lending in practice. There is different underwriting criteria for non-residents. The rent must cover at least 1.2 times the stressed capital & interest repayment, which would restrict LTV to approx 50%. The interest rates are the same regardless of residence of borrower.

For any other bank it's an exception to their credit policy, which requires quiet a strong business case.
The market is so small it's difficult to draw any conclusions from it.

There are 2 separate questions in the original post from @NoRegretsCoyote ;
1. Why won't other banks lend, and
2. Why is the interest rate so high.
 
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Thanks for clarifying that.

I am surprised that lenders don't just charge a higher price for this business.

But as you pointed out, if the market is too small, it's not worth their while gearing up for it.

Brendan
 
Thanks for all the knowledgeable responses folks.

I am not instinctively against institutional landlords, but I can really see now how regulations work in their favour now and against the little girl or guy.
 
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