Karl Deeter: "Mortgage rates will drop..."

Here's the surprise news, rates are going to drop irrespective of these things, not faster, not because of them, but independently and in spite of them.

This trend has already started, it began about a year ago, it just went largely unnoticed

I would not share Karl's confidence that mortgage rates will be cut of their own accord. They have come down a bit, mainly for new customers. But they are still 2% above the average rate in the rest of the Eurozone.

Even if Karl is right and that rates would have come down anyway, the campaign should speed up this process.

While I hope Karl is right, I think that he is wrong. Irish lenders will treat customers fairly, only if they are forced to do so. Unfortunately, that means that we will have to start preparing legislation to cap mortgage rates. Hopefully, before it comes into law, the banks will have made it redundant and it can be left on the shelf.

Brendan
 
The theory goes that where margins are good (too good even) external competition will arrive in the market. It's the reason Aldi and Lidl came to Ireland.

If I read Karl correctly he thinks competition will come from foreign banks coming back into the market. This is unlikely considering how badly they got burnt in the past, especially those from our English speaking neighbours.

Unless there are some banks (and most banks are entrenching rather than expanding) from further afield in Euroland interested in coming, which I doubt, then we are left with the current lot.

And if it's only left to the existing banks, then why would they decrease interest rates, to increase market share? Wishful thinking I think. I think they'll prefer the higher interest rates of their existing market share.

No, if rates fall it will be from political pressure.
 
Hi Redone

I am not sure if Karl is suggesting that new entrants will come into the market. I agree with you than it's unlikely that they will. Jim has made the point elsewhere that banks are now slow to allocate their capital to markets outside their home countries.

There are a few disincentives to entering the market
  • It's a small market
  • There isn't much new lending
  • The CCMA is very costly to adhere to
  • The difficulty in repossessing homes means that it is more akin to unsecured lending
  • The Central Bank is telling everyone that the new business rate is 3.3% - not the 4.2% it actually is
But institutions are putting money into bonds at close to zero or negative interest rates. This does suggest that there are rich pickings in the Irish market, so maybe someone will have a go.

If I were a Eurozone lender earning 2.2% on my mortgage book, I would consider setting up in Ireland and offering mortgages with a maximum LTV of 60% to customers with maximum Loans of three times income. I would charge an interest rate of 3%. I think I would get a huge number of switchers. I might even offer a tracker of ECB + 3%. That should leave plenty of room for profit.
 
But where's your security Brendan?

If anything goes wrong, gombeenary kicks in and you struggle to repossess the underlying asset.

This is the biggest obstacle for new entrants.
 
I suspect that gombeenary is less prevalent on the 60% LTV mortgages than it is on the mortgages in negative equity.

But, you do have a point. Even with a low LTV mortgage it's expensive to repossess and the courts rarely award the costs to the lender.

Brendan
 
Glad to see this made its own thread! (karl here)

A few things I'd point out that have been mentioned:
1. There are new lenders coming, some were here already and will start up again, such as Dilosk, others will be 'new-new' but are not in the lending ready stage (can't disclose who sorry!)
2. There are lower rates coming, only Friday I found out about a 3.5% rate being offered by one bank. Granted, it comes with LTV terms, but that it exists at all is a positive sign. The banks
will also be seeking attrition and to break customer inertia price and incentives is the only thing that works.
3. Banks are coming back to brokers, Ulsterbank just issued their appointment letter to us this week gone, so they want market share, this is why they came back to brokers and they will
also be doing a strong rate drive to get that business.
4. Everybody knows BOI will match, but that's their way of 'coming down without lowering rates', but soon they'll have to follow.
5. Yield curve... honestly, check it out, it's there in black and white.

Main point was that CB and DoF have zero jurisdiction on this.

~ and of course the main-main point... when fixed rates are lower than SVR's it's inverted pricing. That pricing doesn't exist normally and will be shut down in one of two ways, fixed rates will rise or SVR's will drop, I'm confident it will be the latter.
 
Agree Karl that customer inertia is a large reason for less competition. But so too is the fact that switching is difficult and can cost. (Switched twice myself and it was not easy. In Ireland and abroad, but got great rates)
 
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MortgageGuy said:
1. There are new lenders coming, some were here already and will start up again, such as Dilosk, others will be 'new-new' but are not in the lending ready stage (can't disclose who sorry!)
Click to expand...

Hi Karl

That is great news.

Doesn't Dilosk only do investment property mortgages?

It would be great to see BoSI or Dankse coming back. But Danske's SVR is the most expensive and if they lose their Millar court case, I doubt we will see them.

Brendan
 
MortgageGuy said:
Glad to see this made its own thread! (karl here)

4. Everybody knows BOI will match, but that's their way of 'coming down without lowering rates', but soon they'll have to follow.
Click to expand...

a few posts on here (including my own experience) suggesting BOI won't offer anything better than their advertised 2 yr fixed @ 3.8%

Who's offering 3.5% variable Karl?
 
MortgageGuy said:
There are new lenders coming, some were here already and will start up again, such as Dilosk, others will be 'new-new' but are not in the lending ready stage (can't disclose who sorry!)
2. There are lower rates coming, only Friday I found out about a 3.5% rate being offered by one bank. Granted, it comes with LTV terms, but that it exists at all is a positive sign. The banks
will also be seeking attrition and to break customer inertia price and incentives is the only thing that works.
3. Banks are coming back to brokers, Ulsterbank just issued their appointment letter to us this week gone, so they want market share, this is why they came back to brokers and they will
also be doing a strong rate drive to get that business.
4. Everybody knows BOI will match, but that's their way of 'coming down without lowering rates', but soon they'll have to follow.
5. Yield curve... honestly, check it out, it's there in black and white.

Main point was that CB and DoF have zero jurisdiction on this.

~ and of course the main-main point... when fixed rates are lower than SVR's it's inverted pricing. That pricing doesn't exist normally and will be shut down in one of two ways, fixed rates will rise or SVR's will drop, I'm confident it will be the latter.
Click to expand...

Can't share your confidence that 'the market' will magically fix this issue -- this line is also spouted by Noonan and ICB as a blithe excuse for their do-nothing stances.

Cherry-picking interventions of the kind you optimistically outline may be great for brokers and industry insiders, but do nothing to address in a reasonable time scale the shocking level of SVRs that apply to the many mortgage holders stuck with their lenders due to ruined credit records, negative equity or poor LTVs visited upon them by austerity. Incidentally, I have seen little or no mention of the role that the usurious rates themselves play in putting people into financial difficulty.

Beyond this kind of opportunistic, selective intervention, what will competition do for the large group of mortgage holders for whom playing the great switching charade isn't an option?
 
I reckon Santander Bank will open at some stage. They already have several operations here on corporate finance, so a move into retail banking or even a specialist mortgage bank would nit be too difficult.

The other reason I reckon rates will fall is that negative equity is becoming less of an issue with rise in house prices and legacy mortgages gradually getting paid off, this will allow more people to switch putting pressure on the high svr rates.

If one bank targeted the current 4.5% customers with a 3% ecb capped tracker, there'd be queues out the door.
 
Surely until the farcical situation of banks not being able to repossess houses on which mortgages are not being paid and vested interested are making the process of trying to repossess very difficult and expensiive that no quality bank will enter this market
 
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It is quite shocking to see that mortgage rates in France are less than 2% over 20 years loan !! Surely access to European banks for mortgage would help challenge the rip off by our Irish banks. Anyone aware please of any progress on that front?
 
Chantilly said:
It is quite shocking to see that mortgage rates in France are less than 2% over 20 years loan !! Surely access to European banks for mortgage would help challenge the rip off by our Irish banks. Anyone aware please of any progress on that front?
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In France they can reposess non payers a hell of a lot easier than here.

I think AIB said they had 9000 mortgage holder in arrears who have refused to enter into any sort of negotiations and only do so on the steps of the court after about 2 -5 years of not paying one cent. Assuming that is repeated in other banks, THAT'S why we are paying 4.5% and until the politicians stop being afraid of thse strategic defaulters and until the hysterical media types stop pandering to the same people, rates will remain high.

There are others who do enter mediation and do get deals and do their best to make payments and very few if any of them have had any legal action taken against them and the banks see long term value in most of their situations and thus probably don't affect the rates.

So, I think people need to get angry at the total non-payers who are effectively robbing those who are paying svr and the media need to start looking at them and supporting repossessions from this group instead of whining and taking the SF / lefty route of "no repossessions".

Rant over. :)
 
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Chantilly said:
It is quite shocking to see that mortgage rates in France are less than 2% over 20 years loan !! Surely access to European banks for mortgage would help challenge the rip off by our Irish banks. Anyone aware please of any progress on that front?
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for the love of all that is holy, why can you not acknowledge that no bank will enter the Irish market if they cannot enforce security on the asset?

It's very simple. This country sleep walked into a financial quagmire that should have been obvious to spot because of short sighted group think. It's happening again.

grrr
 
mcaul said:
So, I think people need to get pissed off at the total non-payer who are taking the p%ss and the media need to start looking at them and supporting repossessions from this group instead of whining and taking the SF / lefty route of "no repossessions".
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even our supposed right wing politicians such as Stephen DOnnelly and Share Ross are beating that drum. Dishonest or just being politicans?
 
i think it is time for the government to step in here. It is clear they are unable or unwilling to force banks to cut variable mortgage rates. But that does not get them off the hook. The government should devise a plan to help variable mortgage holders maybe through some form of mortgage relief plan for variable mortgage holders. If we are forced to continue to pay for those in mortgage distress it is only a matter of time before we fall into trouble ourselves.
 
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