My Examiner article: "What the Minister for Finance must do to help mortgage holders"

skrooge said:
They might all target low six month- one year fixed rates. In effect offering discount rates before the mortgage holder is faced with high renewal rates/variable rates.
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My full proposal includes a prohibition on discrimination against existing customers. So if they offer new customers a 6 month discount, they must offer it to existing customers as well.

Brendan
 
skrooge said:
Whereas improving the information the customer has to compare the total cost feels like a stronger approach.
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The information given at present is very good. But most people don't understand it. And as Paul said "when people hear nine grand cash back, they stop comparing"
 

I agree that providing more information does not fix the problem of cashback. But there is a fair chance that cashback will not be banned, and so I feel that providing more information along the lines of:
skrooge said:
  • 2.9% fixed for 30 years. No cashback and a total expected repayment of [€450k]
  • 3.1% fixed for 30 years. With 2% cashback and a total repayment of [€462k]
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is helpful, whether or not cashback is banned.

Paul F said:
I favour estimating the interest rate difference between given lenders over the last several years and using this difference as the basis for projections. And you would be forbidden from using "new customers only" rates for this purpose.
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Brendan Burgess said:
While I see the merit in it, it would be way too complex for an individual projection. And brokers and bankers would just say "Oh yes, BoI were dearer but they have changed their strategy. What matters is the rate you are fixing at today... "
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I don't think individual projections are needed. You could just calculate projections for a set of representative mortgage balances and LTV ratios (and whether or not the borrower is eligible for a green mortgage).

I don't really expect the Central Bank to mandate an approach like this for brokers and lenders (even though I wish they would) – but that doesn't stop us from using it if it proves useful.

Brendan Burgess said:
But maybe Askaboutmoney could compile a table of the historic rates for a standard product e.g. <90% , 5 year fixed €200k mortgage.
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I will attempt to do this. It would be useful information to have.

skrooge said:
You'd want to avoid lenders gaming the system.
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If future projections were based on the lenders' historical rates, it would be hard for them to game the system, I would have thought?

Brendan Burgess said:
The information given at present is very good. But most people don't understand it. And as Paul said "when people hear nine grand cash back, they stop comparing"
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I feel that the information presented could be better – and "total projected cost of mortgage" is better than interest rates because very few people are able to quantify what a 0.3% difference means over the long term (whether or not cashback is banned).
 
Paul F said:
But there is a fair chance that cashback will not be banned, and so I feel that providing more information along the lines of:
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Hi Paul

The Central Bank believes that it's ok to provide information and then everything is fine. It's used as an excuse to avoid taking action to really protect consumers.

If lenders have higher rates for existing customers than new customers and if they blind new customers with cash back, then explaining this to borrowers won't really help.

Michael McGrath produced a Bill when he was in opposition which passed the first stage in the Dáil. Paschal Donohoe and the Dept of Finance and Central Bank snuffed it out. Michael McGrath is now the Minister for Finance so I think we have a good chance of getting my proposals through. My proposals are less interventionist than McGrath's.

So I won't want to get distracted by the Central Bank's trap play of "let's provide more information" in case that becomes an excuse for doing nothing serious.

Brendan
 
What about people for whom the cashback is not a ruse or a scam?

People who understand that it’s more expensive, but specifically plan to use the cashback to, say, buy furniture or buy a kitchen.
 
Reactions: jim
Hi Gordon

The purpose of cash back is to keep the rates high for existing customers. It is not to facilitate people buying furniture. You must keep that in mind when discussing cash back.

If people need more money to buy furniture, then they should take out a bigger mortgage and they would appreciate the full cost.

Brendan
 
What was in McGrath's bill?

Gordon Gekko said:
What about people for whom the cashback is not a ruse or a scam?

People who understand that it’s more expensive, but specifically plan to use the cashback to, say, buy furniture or buy a kitchen.
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There are certainly such people but I wonder what proportion of all borrowers they are? That's probably very difficult to know.

Even borrowers who know in general terms that cashback is not good value over the long term might not know just how much it will cost them.

Brendan Burgess said:
The Central Bank believes that it's ok to provide information and then everything is fine. It's used as an excuse to avoid taking action to really protect consumers.
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I agree with this. But if the Central Bank continues to allow dual pricing and cashback, we should still try to design a clearer style of information.
 
Gordon Gekko said:
Hi Brendan,

A lot of times they can’t. I know people who know exactly how the rates work but happily take the €15,000 or so.

Gordon
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In that case they are presumably at the tipping point of taking on debt that is not sustainable for their personal circumstances, so they should really be thinking twice about doing so?
 
Paul F said:
What was in McGrath's bill?
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@Paul F

I attach the Bill and here is the meat of it

4) The Central Bank shall form a conclusion as to whether there is a market failure in the mortgage market.
,“market failure” shall mean a situation in which market conditions are such that a lender is, or lenders are, charging a variable interest rate or
variable interest rates for principal dwelling house mortgage loans which are higher than the Central Bank considers can be reasonably and objectively justified

5) where a market failure exists, the Central Bank may direct a lender not to charge a variable rate in excess of a rate specified by the Central Bank.

Prohibition on discrimination against existing customers
7. In setting a variable interest rate for a group, class or category of principal dwelling house mortgage loans, a lender may not discriminate between existing borrowers and new borrowers.

9 Payment of the legal costs and stamp duty shall not constituted discrimination
 

Attachments

  • FF Bill extracts.pdf
    381.2 KB · Views: 130
But Michael McGrath later proposed to amend the Bill at Committee Stage to proceed with these bits as quickly as possible:


Update on Fianna Fáil bill to control mortgage rates

Fiann Fáil issued a press release yesterday commenting on the Central Bank mortgage rate report. Apparently the Minister for Finance has written to the Finance Committee suggesting an independent economic analysis of the Bill be conducted to preempt any constitutional challenge. However...
www.askaboutmoney.com
 
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ClubMan said:
In that case they are presumably at the tipping point of taking on debt that is not sustainable for their personal circumstances, so they should really be thinking twice about doing so?
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Not necessarily. The Central Bank rules are quite strict, some would say overly strict.

In other words, 3.5 times etc is not a “tipping point”.

The point is that people aren’t eejits thinking “oh wow, a free 15 grand!”

Most people get the joke and know what they’re doing.
 
What a good thread! Ireland has couples in guaranteed income + additional guaranteed income and yet they can’t get a mortgage. They save, are cast aside by the financial institutions and find themselves on the wings while the price of property continuously escalates, Brendan’s Examiner article contains nothing new. I’ve been saying what he is saying for years. But, he is more influential and perhaps our minister will take the hint and do something positive.

Eventually Paddy and Eileen get a mortgage and they don’t question anything because after years of anguish they’ve managed to get a coveted mortgage. Yahoo! - No, what was a 20 year mortgage in the 1980’s has become a thirty year or more life sentence and the thing is they appear happy to be in this position. The banks have convinced them that they are where everybody wants to be. Cash refunds and the occasional cut in rates etc are made work “in the interests of the bank.”

Will Michael McGrath step up to the plate? We don’t know. That is the only thing we know when we cast aside previous performance, promises, political rhetoric etc.

The Question Now Is:- Where do we go from here?
Answer:- 1. I have no doubt that some posters here are members of political parties. It’s time for them to look good at their party getogethers and bang away at what the financial institutions including the Central Bank have been doing. Shout loud and somebody will hear.

2. The “silent majority” should become more voiciferous and let go with double barrels (conversation) at every given moment. Banks don’t want adverse criticism. They pay huge advertising money to try keep themselves on side.

3. Politicians including Michael McGrath issue newsletters regularly to their constituents. Challenge Mr McGrath and others at every opportunity by email and in person where possible.

4. All of us know what is to be done, but we tend to be quiet when politicians confront us. Let’s now confront them for a change.

5. If all of the foregoing fails, then don’t give them a vote. Repeat, don’t give them a vote. Politicians are supposed to work for us and not the other way round.

If you want your grandchildren and the grandchildren of others never to have an affordable mortgage, then do nothing.
 
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