More repossessions will not lead to lower mortgage rates

Jimmy s

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My point also is it should be rules based just not what's in place. My sympathy certainly doesn't lie with the banks who now even though are posting huge tax free profits can still sow an idea of repossessions equaling lower svr rates. Public policy was an option at some stage
Sorry opinion not option
 

Jimmy s

Registered User
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Why haven't the banks used their profits to reduce svr instead of using excuses and lack of evictions as a reason not to reduce rates remembering its the extra charges creating profits.
 

24601

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171
My point also is it should be rules based just not what's in place. My sympathy certainly doesn't lie with the banks who now even though are posting huge tax free profits can still sow an idea of repossessions equaling lower svr rates. Public policy was an option at some stage
I think the key point you seem to be missing - or purposely ignoring - is that it is competition that would have the effect of downward pressure on SVRs. If a lender cannot enforce security efficiently and without massive cost then this needs to be priced into the interest rate charged to customers. Mortgage lending in Ireland is quasi-unsecured so until we create an environment whereby lenders can rely upon the security offered we’ll continue to have too few of them in the market, and consequently higher rates.
 

NoRegretsCoyote

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Mortgage lending in Ireland is quasi-unsecured so until we create an environment whereby lenders can rely upon the security offered we’ll continue to have too few of them in the market, and consequently higher rates.
Not only that, but Ireland is only so big a market, for any product.

Many British and European retail chains have come to Ireland since the 90s as there are enough consumers with spending power to make it worthwhile.

Sadly there will only every be so many new mortgages written in Ireland. There are big fixed costs associated with mortgage provision - underwriting, a branch network,regulatory, etc. That can only be spread across so many customers. It's similar for SME lending where there are basically only three players. New Zealand - a market pretty similar to Ireland - basically has four banks of any consequence and foreign banks aren't interested in market entry as its so small.

Even if collateral could be easily secured in Ireland, I don't think mortgage lending will ever be as cheap as euro-area levels.
 

24601

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171
Not only that, but Ireland is only so big a market, for any product.

Many British and European retail chains have come to Ireland since the 90s as there are enough consumers with spending power to make it worthwhile.

Sadly there will only every be so many new mortgages written in Ireland. There are big fixed costs associated with mortgage provision - underwriting, a branch network,regulatory, etc. That can only be spread across so many customers. It's similar for SME lending where there are basically only three players. New Zealand - a market pretty similar to Ireland - basically has four banks of any consequence and foreign banks aren't interested in market entry as its so small.

Even if collateral could be easily secured in Ireland, I don't think mortgage lending will ever be as cheap as euro-area levels.
I just looked up NZ SVR rates.....Good God!
 

Sarenco

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5,765
Even if collateral could be easily secured in Ireland, I don't think mortgage lending will ever be as cheap as euro-area levels.
The average rate charged on all outstanding mortgages in Ireland (including low-margin trackers) is actually bang in line with the Eurozone average.

It's actually surprising that mortgage rates on new housing loans are not higher given our pro-defaulter policies.

Historic default experience feeds directly into the level of capital reserves banks are required to maintain in respect of new loans. Our historic default rates are horrendous by any standard.
 

NoRegretsCoyote

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The average rate charged on all outstanding mortgages in Ireland (including low-margin trackers) is actually bang in line with the Eurozone average.
My point was pretty clearly about new lending, where Irish rates are indeed higher.

In ten years much of the tracker book will be fully paid off. Even then I would not expect new lending rates to be at euro-area levels.
 

RedOnion

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3,288
Whether a new lender is interested is all down to return on equity, with the amount of equity a bank lender must put up being driven by bad debts of which enforceability of security is a major factor.

There are big fixed costs associated with mortgage provision - underwriting, a branch network,regulatory, etc
There are very little fixed costs to start originating and servicing mortgages. A branch network is the very last thing that a new lender would think about setting up. Almost everything can be outsourced for a set percentage of the balances written / serviced. There are some fixed costs, but they aren't material.
In terms of market size, there are over 700k mortgages with an outstanding balance of just shy of 100bn. Just over 9bn of new lending was written last year, with 10bn expected this year. The market is big enough for a new lender if they saw the margins worthwhile for the risk they have to take on. Yes, it'd take a while to build up a worthwhile book size, but a new entrant gaining 20% share would be writing 2bn per year.

New Zealand - a market pretty similar to Ireland - basically has four banks of any consequence and foreign banks aren't interested in market entry as its so small
It might be a small market, but there are at least a dozen lenders offering mortgages in the main cities. I know one or two are subsidiaries of others, but there's a lot more competition there compared to here.
 

RedOnion

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I just looked up NZ SVR rates.....Good God!
Just remember they still have offset mortgages available.

And compare their fixed rate mortgages to their term deposit rates to give a better idea of bank margins. The NZD isn't anywhere near negative rates.
 

NoRegretsCoyote

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921
Whether a new lender is interested is all down to return on equity, with the amount of equity a bank lender must put up being driven by bad debts of which enforceability of security is a major factor.


There are very little fixed costs to start originating and servicing mortgages. A branch network is the very last thing that a new lender would think about setting up. Almost everything can be outsourced for a set percentage of the balances written / serviced. There are some fixed costs, but they aren't material.
That's interesting. I had heard the opposite first hand from people in the industry.

So I'm curious. You say fixed costs are not material, and new entrants would have no need to cross-subsidise a tracker book. We know the market for new lending is growing, having more than doubled since 2012. So why have we not seen any new entrants?
 

RedOnion

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I had heard the opposite first hand from people in the industry.
Well, the last time I set up a bank... What fixed costs are there? Dilosk and Finance Ireland are both able to turn a profit on very small portfolios.

So why have we not seen any new entrants?
Because of the amount of their own capital they need to put up, and the fact they can lend more elsewhere for the same capital.
All covered here:

And here:

Maybe mortgage lending here just isn't profitable enough to attract new entrants?
 
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