Brendan Burgess
Founder
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This issue has been discussed in different threads on askaboutmoney and on various TV and radio programmes. Borrowers say one thing while the banks say something else. I thought it would be useful to collect the information and arguments in one systematic thread and see if there is a way forward.
Statement of interest: I have a direct shareholding in Bank of Ireland and an indirect shareholding as a taxpayer in AIB, PTSB and EBS. I have a cheap tracker.
|rate 7/2009|increase|rate Sept 2011|
ECB|1% |0.5%|1.5%|
PTSB|2.69%|3%|5.69%| not available to new borrowers
EBS|2.65%|2.28%|4.93%|from Oct
Bank of Ireland|2.6%|1.25%|3.85%|
AIB|2.65%|0.84%|3.49%|This information was provided by Will Goodbody on yesterday's 6 One News on RTE 1
Can anyone confirm if these rates are correct?
Has anyone got the rates for the other banks?
From the banks' point of view
The banks are paying very high rates for deposits and the mortgage rates must reflect this.
The banks need to make a profit to survive - these are just market rates
The margins in the Irish mortgage market were unsustainably low. Bank of Scotland cut the mortgage rate and Northern Rock raised the deposit rate so that the banks could not make a profit on the margin. Things are only now returning to normal.
No one complained when the Irish banks reduced their Standard Variable Rates although the ECB had not reduced them.
They have been told to deleverage by the Central Bank and this is one way of doing it. Customers now have an incentive to repay their loans.
They charge the save SVR for new business and for existing business, so they are not exploiting existing customers to attract new business. (Irish Nationwide used to do this)
These are not tracker mortgages so the borrower has no right to track the ECB rate.
Most of these borrowers could have switched to trackers but didn't get their act together.
From the taxpayers' point of view
The taxpayers' point of view is effectively the same as the banks' point of view as we own 50% of all mortgages. However, we can't direct the non state-owned banks to moderate the interest rate.
We badly need to see the banks deleveraged to reduce our exposure.
We badly need to see the banks profitable again so we can recover some of the money we have used to recapitalise them.
These high rates for new borrowers are reducing mortgage demand.
From the borrowers' point of view
These banks have been baled out by the taxpayer and are owned by the taxpayer and now they are screwiing those same taxpayers
Although they are not trackers, there is a reasonable expectation that they would stay within range of the ECB rates
What is to stop PTSB from raising the rate to 10%?
This is just making the arrears problem worse for those in arrears
There is no competition in the market so we can't switch to a more competitive lender
The state owned banks should charge the same rates.
False arguments (not saying that I agree with the above points)
"Borrowers with SVRs are subsidising those with trackers."
Not really. Each product has to be profitable in its own right. It's easy to compare SVRs with trackers, but you could also argue that the SVRs are subsidising the losses on SVRs and the losses on property development.
" EU data show that we have cheap mortgage rates by comparison to others in the Eurozone." Irish Bankers Federation claim
This may be factually correct, but is not the point. The averages are being brought down by the 50% of borrowers who have cheap trackers.
Some suggestions
The state owned banks could giver borrowers the option to convert all SVR mortgages to trackers e.g. ECB + 4.5%. This removes the borrower from being subject to the whim of the lender.
The Central Bank should extend the deleveraging timescale, in particular, on PTSB.
Statement of interest: I have a direct shareholding in Bank of Ireland and an indirect shareholding as a taxpayer in AIB, PTSB and EBS. I have a cheap tracker.
ECB|1% |0.5%|1.5%|
PTSB|2.69%|3%|5.69%| not available to new borrowers
EBS|2.65%|2.28%|4.93%|from Oct
Bank of Ireland|2.6%|1.25%|3.85%|
AIB|2.65%|0.84%|3.49%|
Can anyone confirm if these rates are correct?
Has anyone got the rates for the other banks?
From the banks' point of view
The banks are paying very high rates for deposits and the mortgage rates must reflect this.
The banks need to make a profit to survive - these are just market rates
The margins in the Irish mortgage market were unsustainably low. Bank of Scotland cut the mortgage rate and Northern Rock raised the deposit rate so that the banks could not make a profit on the margin. Things are only now returning to normal.
No one complained when the Irish banks reduced their Standard Variable Rates although the ECB had not reduced them.
They have been told to deleverage by the Central Bank and this is one way of doing it. Customers now have an incentive to repay their loans.
They charge the save SVR for new business and for existing business, so they are not exploiting existing customers to attract new business. (Irish Nationwide used to do this)
These are not tracker mortgages so the borrower has no right to track the ECB rate.
Most of these borrowers could have switched to trackers but didn't get their act together.
From the taxpayers' point of view
The taxpayers' point of view is effectively the same as the banks' point of view as we own 50% of all mortgages. However, we can't direct the non state-owned banks to moderate the interest rate.
We badly need to see the banks deleveraged to reduce our exposure.
We badly need to see the banks profitable again so we can recover some of the money we have used to recapitalise them.
These high rates for new borrowers are reducing mortgage demand.
From the borrowers' point of view
These banks have been baled out by the taxpayer and are owned by the taxpayer and now they are screwiing those same taxpayers
Although they are not trackers, there is a reasonable expectation that they would stay within range of the ECB rates
What is to stop PTSB from raising the rate to 10%?
This is just making the arrears problem worse for those in arrears
There is no competition in the market so we can't switch to a more competitive lender
The state owned banks should charge the same rates.
False arguments (not saying that I agree with the above points)
"Borrowers with SVRs are subsidising those with trackers."
Not really. Each product has to be profitable in its own right. It's easy to compare SVRs with trackers, but you could also argue that the SVRs are subsidising the losses on SVRs and the losses on property development.
" EU data show that we have cheap mortgage rates by comparison to others in the Eurozone." Irish Bankers Federation claim
This may be factually correct, but is not the point. The averages are being brought down by the 50% of borrowers who have cheap trackers.
Some suggestions
The state owned banks could giver borrowers the option to convert all SVR mortgages to trackers e.g. ECB + 4.5%. This removes the borrower from being subject to the whim of the lender.
The Central Bank should extend the deleveraging timescale, in particular, on PTSB.