Mortgage rates to fall?

According to Charlie Weston in today's Indo, increasing competition will bring down mortgage rates.

Merrion Capital reports that AIB and BoI are losing a lot of business to KBC which is competing aggressively on price and that AIB and BoI will have to cut rates to compete. In fact, Merrion says that AIB and BoI are already losing existing customers to KBC.

As I have pointed out here Briefing: Irish mortgage rates are almost 2% higher than the Eurozone average! ( 1 2) there is plenty of scope for Irish lenders to cut their rates and,
the new business will still be very profitable.

The government owns AIB, ptsb and the EBS , which between them control over
50% of the mortgage market. They should instruct them to compete for new business
by cutting rates down towards the rates in other eurozone countries.

Of course, the Central Bank is still pretending that the rate for new business in Ireland
is only 3.15%.

Not that I disagree with your analysis Brendan, but doesn't recent experience show the difficulty in securing properties in cases of default mean an inherent premium is/has to be built into Irish rates?

rob oyle said:

Not that I disagree with your analysis Brendan, but doesn't recent experience show the difficulty in securing properties in cases of default mean an inherent premium is/has to be built into Irish rates?

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The current situation revolves around in most cases of a Bank failing to engage with a mortgagee. Again another case of the Banks blaming the public of their careless lending.

rob oyle said:

Not that I disagree with your analysis Brendan, but doesn't recent experience show the difficulty in securing properties in cases of default mean an inherent premium is/has to be built into Irish rates?

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If they are lending 90% LTV and 4 times joint salaries, the rates might be justified.

But the lenders should charge much lower rates to much better risks e.g. 50% LTV and Loans to salaries of 3 times. The "unsecured" nature of Irish lending should not cost these anything.

Brendan

Brendan Burgess said:

According to Charlie Weston in today's Indo, increasing competition will bring down mortgage rates.

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He could of course be wrong. None of us knows the future for interest rates. Especially when rates are at basically rock bottom in the ECB.

The Governor of the Central Bank has signaled that SVRs may be too high in Ireland...

[broken link removed]

So, should there be a ceiling on interest spreads? Control of retail interest rates by the Central Bank is not provided for in legislation, and I believe it should remain so. This will not come as a surprise to students of economics, accustomed to understanding the problems that can be caused by preventing the emergence of a market-clearing price. But I think that there is an important political economy dimension here. If the local banks are charging unnecessarily high interest rates, that will be an inducement for new entry into lending here, and that (reversing the trend of the past few years) would be very welcome and would have the effect of bringing both pricing and the quality of banking services to a much better place. In contrast, aggressive official interest rate spread control would be the clearest warning signal to would-be entrants that they might not be permitted to earn sufficient profits to justify the costs of entering.

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Well done for your ongoing highlighting of this Brendan.

Good to see high mortgage rates mentioned on the RTE 9 O'Clock News tonight.

This issue is now getting greater prominence.

If the new CB guidelines go ahead without amendment, there "should" be a consequent fall in mortgage rates as Irish banks will ultimately be seen by their lenders as bearing less risk in their main lending area. I say should as it seems there's not enough competition to force mortgage rates down towards banks cost of funds + small premium where they should go in a competitive market. One factor I think will mean an "Irish Premium" in mortgage rates long term is that is almost impossible to enforce security here, so in a sense the loans are not what is normally understood by secured.