High mortgage rates caused by low levels of repossessions

gnf_ireland said:

Not really. I want to be able to look at 3 different products from 3 different providers and compare them not just today, but also in 2, 5 or 10 years time. If they are pegged to something/anything, then this comparison is possible
Bank A offers 2% above EURIBOR
Bank B offers 1.5% above EURIBOR but has a 1000 arrangement fee
Bank C offers 3% above EURIBOR but offers a 1000 cashback deal
It allows me to compare beyond a point in time

Today, given the nature of SVR's they are based on thin air, and can change the day after drawdown just because the bank feels like it. A best deal today may be the worst deal tomorrow and visa versa. Its about making decisions on products, but making intelligent ones

BTW, I do agree that any mortgage should be a secured loan on an asset, and this means the bank should be able to claim the asset in the event of non-payment. This is why a mortgage traditionally has a lower interest rate than an unsecured personal loan. I also appreciate this is not the case today for a variety of personal reasons. This is a different issue that baselining an SVR on something solid

As @Sarenco says, this is not uncommon practice on commercial loans

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Euribor/Libor is indeed common practice for most non-consumer loans. Not sure why that can't be the same for SMB or consumer loans. I'd guess it's due to a number of factors.
Bargaining power & historic custom/practice. Commercial loans will be negotiated and a random figure plucked out of thin air (SVR) isn't going to provide an FD with certainty. Also commercial borrowers need to be able to hedge their debt so need comparable base rates for their swaps.

Similar to the issues with trackers, the bulk of Irish Bank liabilities are now (customer deposits and fixed rate bonds) not Euribor linked. How many consumer deposit accounts pay a specific rate rather than Euribor +10bps or Euribor - 10bps? None that I'm aware of.

Euribor/Libor linked loans would be great (I'd love one) but without dedicated long term matched funding it doesn't make sense to match your base rate on a long term loan to something you may or may not have access to in 10 or 15 years.

gnf_ireland said:

I don't believe i mentioned redrawing in that above post. I do consider this a nice feature where available to some people. Redrawing to me is more like an offset scenario, were the interest is offset by putting the money effectively on deposit with them.

What I said above is the ability to overpay, and then take a payment holiday. This is basically the scenario whereby the bank has extended credit to x based on the original assessment, and you agree a payment plan to repay this. You then overpay this so are effectively giving them extra funds which then are used when you underpay, until you reach the status quo again - ie your overpayments have been exhausted

I guess its akin to the view that if you overpay your mortgage you dont go into arrears until you exhaust the overpayments and you owe more than was agreed based on the original repayment schedule based on mortgage amortisation over the lifetime of the loan

Not sure I am making sense here, but makes sense in my 'head'

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You didn't. I misread what you posted.

The only problem I see with that is, you'd still have to fund the interest on a monthly basis. You couldn't take a principal and interest holiday but you could realistically take a principal holiday.

I wonder how hard it would be for them to set up their loan systems for that to work on an automatic basis - noting most banking software was built decades ago and patched over and over and over whereby few people actually know how it works.

Andy836 said:

A lender's cost of funds is an arbitrary figure. They'll class it as Base Rate or Prime or something like that which will allow them lump all sorts of stuff into it.

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It's hardly an arbitrary figure. Granted it's not determined or verified in accordance with a detailed rulebook but that doesn't make it arbitrary. It's a lot less arbitrary than an SVR.

Andy836 said:

Euribor/Libor is indeed common practice for most non-consumer loans.

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And yet the vast majority of such non-consumer loans are not securitised.

Sarenco said:

And yet the vast majority of such non-consumer loans are not securitised.

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No they're not but they're much shorter tenor than mortgages so can be repriced. Corp deposits are also typically benchmarked against libot/eurobor. Furthermore, as you move into the middle market space and above they're syndicated so need a common/uniform rate.

Andy836 said:

No they're not but they're much shorter tenor than mortgages so can be repriced. Corp deposits are also typically benchmarked against libot/eurobor. Furthermore, as you move into the middle market space and above they're syndicated so need a common/uniform rate.

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That's all absolutely true Andy - I was really just trying to make the point that it's not quite correct to say that a loan has to be securitised before it can track a reference rate. Practically all floating rate mortgages on the continent track EURIBOR and they are not all securitised.

Daphnex said:

It must be an unfair term in a consumer mortgage if the interest rate does not track the euribor.

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Must it?

To the best of my knowledge, no Irish lender has ever offered mortgage products that track EURIBOR.

Sarenco said:

What do you think is the explanation?

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Honestly, I think the explanation is they get away with it ! If you look at how many people actually switch who could switch, I imagine the numbers are very small. A comment was made to me the other day by someone who were talking to Ulster Bank. They had said they ran a switching campaign recently and the numbers were really poor. The comment made was "most would rather divorce than switch their banks".

I am guessing the super prime market for new mortgages is very low - say defined as <50%/40% LTV and <2/2.5 times LTI. Most appear to want to borrow as much as they can - which is also understandable as well given the challenge in saving a deposit in the first instance. So there is no real market for it for new customers

Switchers is such low volumes overall, probably does not justify it either.

So in essence, there is no 'mass market' demand for the product, so the banks don't create one. Simple as !


That said, Ireland does not really do 'mid level' Premium Banking either. I know AIB and BoI have Premium Banking by name, but based on my experience with them they are not comparable with international offerings at the same standard. I would have assumed there would be a 'level of colleration' with super prime lending and premium banking services.
I assume Ireland does Wealth Management, but obviously have no experience of that

Daphnex said:

It must be an unfair term in a consumer mortgage if the interest rate does not track the euribor.

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The mortgage documents of an SVR mortgage clearly state that the mortgage rate does not track anything other than the whim of the bank !

gnf_ireland said:

So in essence, there is no 'mass market' demand for the product, so the banks don't create one. Simple as !

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That's a fair point.

It really is a pity we don't have a more active switching market - although the trend is certainly moving in the right direction in that regard.

Sarenco said:

It really is a pity we don't have a more active switching market

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I wonder how many people genuinely switch other services on an annual basis such as telephone, broadband, bins, health insurance, car/house insurance etc. I wonder how many people leave money in deposit accounts making minimal interest when better options exist

Ultimately are the users of askaboutmoney the exception rather than the rule - I imagine they are if I am being honest