EBS Building Society is to be reprimanded!

[ButtermilkJa]

Have you worked out the total cost over 30 versus 40 years! And then factored in the additional term mortgage protection life assurance premiums?

Using Karl Jeacle's mortgage calculator I estimate the total interest bill (excluding interest relief) on €300K at 5% over 30 years to be c. €280K and the equivalent bill over 40 years is c. €400K! This is the amount that you pay in addition to the original €300K borrowed.

Yes, definitely, I worked that out as well and it's a hell of lot more, but I'm purely talking about the first 2/3 years that I plan to be in my 'starter home' so to speak.

Basically I borrowed €248k over 40 years. I took the rate to be what I'm on now 4.35%. So after 2 years I've paid roughly €21,500 on interest and the principle reduces to only €243,500. For 30yrs I would have paid €21,250 in interest, but the principle would be reduced to €240,000. So €3,750/€4,000 give or take.

 

[Sunny]

Didn't they do a survey in Britain who have had 40 year mortgages alot longer than us and found that the average mortgage was held for 3.5 years before refinancing and found no evidence that loads of people were lumbering themselves with 40 year debt. Nobody is saying they make financial sense in the long term but I can certainly see the attractiveness to FTB to help them get on the ladder during periods of rising house prices. As long as they are aware of the consequences of not refinancing as Clubmans scary calculations show!

 

[GreatDane]

Hi

While personally, I don't have a problem with 40 year mortgages to help young people get started, I would strongly recommend those who obtain these longer mortgages do everything they can to shorten the duration, as soon as posible. Even if the 40-year mortgage were to run the entire term, it would only bring two people starting off in their early 20s, to max 65 years which is retirement age etc.

What I do however have a mega problem with, is the EBS breaking away from IFRSA's recommended best practice & reducing it's stress testing requirements, to 1% over current rates while every other institution is stress testing at 2% (well, so reports have it anyway).

Surely, this is effectively taking on riskier lending, as EBS will now be approving loans others won't take on, given the potential for a borrower being unable to pay if rates rise significantly etc.

Furthermore, EBS stated in that article that they had taken a view on the interest rate market - who gave them the crystal ball ? .... the bottom line here is the EBS are breaking from IFSRA's recommended best practice & perhaps putting some ordinary people's homes at risk, not to mention taking unnecessary potential risks with their members' business !!!

If the EBS cannot secure enough share of the mortgage market, when the economy is strong & every other lending institution is making more & more money each year, it's pretty clear where the problem really rests ..... and it ain't with it's stress testing calculations !

Cheers

G>

 

[ClubMan]

While personally, I don't have a problem with 40 year mortgages to help young people get started, I would strongly recommend those who obtain these longer mortgages do everything they can to shorten the duration, as soon as posible.

I agree - but it's up to people to make informed and prudent choices.

What I do however have a mega problem with, is the EBS breaking away from IFRSA's recommended best practice & reducing it's stress testing requirements, to 1% over current rates while every other institution is stress testing at 2% (well, so reports have it anyway).

Can you post something authoritative on these reports please?

Furthermore, EBS stated in that article that they had taken a view on the interest rate market - who gave them the crystal ball ?

I agree that it's impossible to predict the future but surely every lender, financial institution, company and individual makes some subjective judgement call on this issue when making certain decisions for whatever it's worth?

 

[bearishbull]

The need for 40 year mortgages in an era of dual income households tells you a lot about the rationality of the property market. Maybe those needing such long terms even if for first few years only might take this as a signal to reconsider the fundamentals of the market and their personal perceptions of same.

 

[Sunny]

The need for 40 year mortgages in an era of dual income households tells you a lot about the rationality of the property market. Maybe those needing such long terms even if for first few years only might take this as a signal to reconsider the fundamentals of the market and their personal perceptions of same.

But it is also the era of single people buying homes and I would hazard a guess and say that it is these people who use the 40 year option at the beginning and not dual income earners.

 

[DirtyH2O]

Where is all the ill feeling towards the EBS stemming from. Their stated policy was to offer the same variable rate to all members and until recently this was consistently near or at the top of the table for best variable rates. They have slipped since the introduction of tracker mortgages and LTV but I think calling this shameful is a little strong.

They have tended to be a little more flexible in their lending to FTB and other lower incomes than many banks to facilitate them to get a home which was one of the main reasons building societies were started in the first place before they were swept away by the wave of demutualisations in the last couple of decades. I may disagree with some things that the EBS do such as the money wasted on the lease of the Grafton street branch that never opened but not their lending policy towards the less well off.

 

[andycole]

Yes...the 25 - 30 - 40 year loan is mostly focused on single applicant FTB's mostly I would think. I know from my own experience that 25 years was the only way I could be mortage approved. However I have the opportunity to continue to save weekly with the goal of bringing the loan amount down so perhaps reducing to 20 years. This I am confident of achieving because the property is currently in construction at the moment - so I have this added savings time.
However I am aware of the increasing interest rates which will have a negative impact on the total loan amount that I will be able to achieve - however since Budget I realise that the Mortgage interest relief has also increased - with hopefully the price of the property also.

 

[andycole]

to acknowledge DH20 comments - i agree that the building societys were originally set up "to be run by members for the benefit of members" so this should be reflected in its lending policy by helping members get mortage approval. i am grateful for this from EBS, i know that i would not have got same amount for a bank etc.
also i agree that a downside to demutalisation is the effect of less flexibility in its lending policy etc..even though i got money from first active when it demutalised i hope that EBS continue as a building society.

 

[GreatDane]

Can you post something authoritative on these reports please?

Source - Irish Indepdent Article from Yesterday:
Link: http://www.unison.ie/business/stories.php3?ca=80&si=1765498

The dropping of the 2pc stress test is likely to prove highly controversial.
Lenders have complied with the guidance issued by the Financial Regulator on stress-testing for six years now.

The regulator requires lenders to check if borrowers can cope with interest rates rising 2pc above the standard variable rate.

Even though the guidance is voluntary, it has been observed across the industry up to now.

Yesterday, a spokeswoman for the Financial Regulator said the 2pc stress test was considered best practice.

"It is one of a number of prudential measures.

"It is a market norm and good practice. When an institution deviates from it we will raise the matter with the institution. We expect lending policies to be approved at board level."

Head of mortgages at EBS Dara Deering denied the lender was being irresponsible.

She said EBS was only stress testing for a 1pc rise in rates because it did not think home loan rates would rise above 5pc to 6pc.

"It is not pragmatic to add 2pc to medium term rates when we don't believe rates will go there."

She denied the new lending criteria were motivated by EBS's loss of market share as it was increasingly becoming less competitive.

You know Clubman, if I was not such an understanding type of person, with lots of experience of discussion boards etc, I might have thought you didn't have confidence in my original post, based upon the way you phrased that last request

Cheers

G>

 

[ClubMan]

I can't see anything on the [broken link removed] about this which is where I would expect to see authoritative information about it.

 

[GreatDane]

Hummm,

Perhaps you should drop them a quick e-mail to ask about the comments in yesterday's Irish Indo and confirm their position, if your unhappy with the article ... or maybe the Indo could confirm (ref: Charlie Weston ) ?

Cheers

G>

 

[CCOVICH]

The regulator requires lenders to check if borrowers can cope with interest rates rising 2pc above the standard variable rate.

Even though the guidance is voluntary, it has been observed across the industry up to now.

Makes no sense to me-if something is required, it cannot be voluntary.

It would appear to me that there is no legal or formal regulatory basis for the 2% stress test (whether or not there should be is a separate issue) and EBS are within their rights to stress test how they see fit.

 

[ClubMan]

That's what I was wondering - whether there is actually any substance to this story at all.

 

[Sunny]

That's what I was wondering - whether there is actually any substance to this story at all.

There is substance in the form of the stupid comment made by EBS that why stress test for 2% rise in rates when rates will never get that high. Fair enough, everyone pop down to the EBS and get a free capped mortgage at a base rate of 4.50% since they know for sure that rates will never go higher.

Also increasing market share by relaxing lending criteria is a dangerous game. They might have been only guidelines but they are there for a reason. If all the banks start ignoring them, then there is a very strong case for the Central Bank to step in and introduce regulatory penalties in the form of capital requirements on Banks with aggressive lending practices. There is an argument that they should have done it before now.

 

[GreatDane]

There is substance in the form of the stupid comment made by EBS that why stress test for 2% rise in rates when rates will never get that high. Fair enough, everyone pop down to the EBS and get a free capped mortgage at a base rate of 4.50% since they know for sure that rates will never go higher.

Also increasing market share by relaxing lending criteria is a dangerous game. They might have been only guidelines but they are there for a reason. If all the banks start ignoring them, then there is a very strong case for the Central Bank to step in and introduce regulatory penalties in the form of capital requirements on Banks with aggressive lending practices. There is an argument that they should have done it before now.

Hi

Very good point made .. I'd agree entirely.

I guess the following question to be asked here, are what powers, if any, have IFSRA got with respect to enforcing their requirement for stress testing with 2% rate rise, or penalising the EBS for not following such guidelines ? .. no doubt, time will tell (obviously, the concern for EBS members here is that if IFSRA were to fine the EBS, it's the members who ultimately will suffer as it's their company which will be fined, not the board members etc).

Getting back to matters at hand, I'd be well up for a cap on my mortgage, to ensure it never went more than 1% over current rates for the rest of it's term ... I thought most lending institutions charged for these products but perhaps, there is a benifit to being in a mutual society after all, with free interest rate caps now available (we all know, it's been a struggle trying to find other reasons to be with this mutual, in recent years) LOL

Cheers

G>

 

[DeirdreL]

EBS have just announced stress testing is back to 2%

 

[GreatDane]

EBS have just announced stress testing is back to 2%

That didn't take long, I can't wait to see what they say when some journalist asks them about their sudden reversal ... guess they changed their minds on what the future holds for Interest Rates

Cheers for the update

G>

 

[andycole]

The EBS Building Society have now agreed to place a 2% on stress testing rather than the proposed 1%. This is interesting to note the effectivness of the regulator in their discussions with the EBS. For a FTB taking note can only assume that interest rates will be increased perhaps more than once this year by the Central Bank in Europe. I wonder how much will interest rates increase this year? Also this to my mind proves how difficult many people will find coping with increased interest rate increases and also the fact that many people do have large mortages which have to be paid over a long term such as >25 years!