Should the government tell banks what mortgage rates to charge?

onq said:
Elderfield's original position was wrong.

PTSB are clearly profiteering and will continue to do so as long as we allow them to.
Profit chasing is what has gotten us into this mess - so its past time to put a brake on the PTSB.
The myth of the self-regulating free market is broken and needs to be eviscerated and dealt with finally.
It is clear that without any regulation capitalists - without conscience or an awareness of society's well-being - will chase profits.

The subject is their interest rate, not their loan book - please let's stay on topic, because this is not just an important discussion.
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Their loan book is completely relevant to the discussion. One of the biggest reasons we got into this crisis was the mis-pricing of risk and despite that we now have people saying that banks are profiteering because they charge higher interest rates than their competitors without knowing anything about it.

The regulator obviously has competition concerns and justifiably so but to suggest that every bank should charge the same rate or automatically cut/increase rates depsite having different risk and costs on their books is ridiculous.
 
onq said:
The old

"Your lack of knowledge on other things negates your argument" riposte?

Sorry, but if other banks - more heavily debt can struggle along on lesser rates then PTSB operating at the same time in the same market can either follow suit or rearrange their internals to allow them to follow suit.

Anyone whose ever done a marketing degree will tell you that.
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onq said:
Citing their deposit rates is a non-argument.
(handbag out) You show me that they aren't profiteering!

I'm not interested in what they CLAIM they'll give to people with money.
I'm interested in what we KNOW they're taking from people some of whom are financially distressed.
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I give up. You are in LOS territory now. I am not the one making claims of profiteering so I don't have to back enything up. I am not even saying they aren't. But show me the evidence that they are.

And you think people with marketing degrees are involved in pricing loan books taking into account funding costs, risk, capital costs, operating expenses etc etc...
 
Last observation on this. According to Moodys, the net interest margin for the three main Irish banks at the end of 2010 were

AIB: 1.5%
BOI: 1.4%
ILP: 0.4%

These figures don't explain everything but they are a useful indicator. They do explain why PTSB are under pressure to have higher interest rates on their loan book than the others. Maybe 5.9% or whatever it is is too high but I don't know the details.
 
Wilbur Ross the owner of 35% of Bank of Ireland has [broken link removed]whey they are not passing on interest rate cuts.

Mr Ross, who owns 9 per cent of Bank of Ireland, said late yesterday that the lender's high funding costs made it difficult to pass on the ECB rate cut.

"I can assure you that Richie Boucher is well aware of the need for responsible pricing of loans and also is aware that lower rates make it easier for borrowers to remain current in their payments," US-based Ross said in response to questions emailed by Reuters.

"High funding costs are hopefully a temporary phenomenon.

"In a more normalised environment it would become easier to synchronise interest rate spreads with changes in rates charged by ECB."
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Sunny said:
The regulator obviously has competition concerns and justifiably so but to suggest that every bank should charge the same rate or automatically cut/increase rates depsite having different risk and costs on their books is ridiculous.
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Do you not think that the real problem is that those who want to go to another lender with much lower rates,are unable too?
PTSB are free to charge what they want,but people who have mortgages with them are not free to move lenders.
 
thedaras said:
Do you not think that the real problem is that those who want to go to another lender with much lower rates,are unable too?
PTSB are free to charge what they want,but people who have mortgages with them are not free to move lenders.
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Johnny has a credit card with PTSB, it's charging him 17.3% on purchases. AIB have a credit card charging 13.6% on purchases. He has 20k purchases (it's the only credit he could use to keep the business afloat) outstanding on the credit card but he had to close the business. He am now unemployed so he cannot switch to AIB.

Seeing as we own PTSB can the government intervene and force it to lower credit card rates as well as mortgage rates?
 
NorfBank said:
Johnny has a credit card with PTSB, it's charging him 17.3% on purchases. AIB have a credit card charging 13.6% on purchases. He has 20k purchases (it's the only credit he could use to keep the business afloat) outstanding on the credit card but he had to close the business. He am now unemployed so he cannot switch to AIB.

Seeing as we own PTSB can the government intervene and force PTSB to lower credit card rates as well as mortgage rates?
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The government can force them to do anything they like through threat and bullying but the net result will be the tax payer footing the bill. We are now subsidising AIB mortgage holders to the tune of €20-€30 million on top of the money that we've pumped into the banks already. At what stage do we decide that the banks should make a profit and start to give us our money back?
 
Purple and NorBank, I see your points.
However ,the government HAVE intervened,but for the wrong reason as Brendan pointed out..
 
thedaras said:
Do you not think that the real problem is that those who want to go to another lender with much lower rates,are unable too?
PTSB are free to charge what they want,but people who have mortgages with them are not free to move lenders.
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That is what Elderfield is talking about when he says there are competition concerns because of the dysfunctional market.
 
Back in early 2010 I made the following suggestion: Tracker Good! SVR Bad! Banks should be compelled to offer Trackers.

I believe banks should be compelled to offer fixed % margin tracker mortgage products. The would be free to charge whatever +x% rate they negotiated with the consumer.

This is not the same as a trackers set at an unsustainably low margin or against an inappropriate index.

Further I believe the practice of offering very short term promotional rates should be outlawed.

Banks should also be compelled to offer long term fixed rate mortgates for periods up to the life of the mortgate.
 
This is taken from the above highlighted thread;
Brendan Burgess
We should focus on making it even easier to switch mortgages, so that if your bank does not pass on the interest rate cut, then you can switch to another bank.
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To me,it seems that in a free market,you are free to get your product elsewhere.Now its only those who are in a financially very strong position,who are not in negative equity etc,are now free to move their mortgage from PTSB.
 
thedaras said:
This is taken from the above highlighted thread;
Brendan Burgess

To me,it seems that in a free market,you are free to get your product elsewhere.Now its only those who are in a financially very strong position,who are not in negative equity etc,are now free to move their mortgage from PTSB.
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It is a free market but you can't expect banks to take on mortgage holders who are in arrears or in huge negative equity and increase the risk on their own balance sheet (and then probably not get paid properly for it). That is why the market is dysfunctional.

I am all for protecting people who are stuck with a lender to make sure they are not exploited but I honestly have no idea how they do it. I do know, it's not to be done by dictating the price the banks charge. Imagine the uproar if the Government ordered the banks to cut their deposit rates to match the ECB rate.
 
Sunny said:
Imagine the uproar if the Government ordered the banks to cut their deposit rates to match the ECB rate.
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or to order new valuations on properties to see if they still fall under the LTV criteria for their trackers.

Be careful what you wish for..
 
Brendan Burgess said:
Wilbur Ross the owner of 35% of Bank of Ireland has [broken link removed]whey they are not passing on interest rate cuts.
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Does he own 35% or the 9% in the article you quoted.

Either way - all he says in the piece is -

"We know what you want but you're not getting it".

And the article trots out the old canard about low interest rates hampering a return to profit.

Totally ignoring the lack of inter bank lending and poor rates of investment loans to viable businesses seems to be part of Mr. Ross current myopic disposition.
 
Sunny said:
It is a free market but you can't expect banks to take on mortgage holders who are in arrears or in huge negative equity and increase the risk on their own balance sheet (and then probably not get paid properly for it). That is why the market is dysfunctional.
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<sarcasm>
Far be it for anyone to suggest that people who were negligently advised on financial products should look to the sector that supplied the incompetent advice for succour - perish the thought that any company - an entity that touts "personhood rights" in the United States - should be introduced to the ethics of responsibility or consequences.
</sarcasm>
I am all for protecting people who are stuck with a lender to make sure they are not exploited but I honestly have no idea how they do it.
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I'll take that as a huge positive comment - well done for stating it.

I do know, it's not to be done by dictating the price the banks charge. Imagine the uproar if the Government ordered the banks to cut their deposit rates to match the ECB rate.
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I don't think dictation is the way forward and I am wary of making broad sweeping laws.
Situations like this need human intervention and human judgement, not a set of Roberts Rules of Conduct.
Which is why I said it should be left to the Regulator to call it, and to review it monthly or weekly if necessary.
 
What about this from the Bold "Sindo ";
http://www.independent.ie/national-news/elderfield-chickening-out-on-bank-rate-cuts-and-should-step-aside-2934307.html?service=Print

Taken from the above,here are the rates quoted in the article;
Permanent TSB has the most expensive variable rate at 5.44pc while Ulster Bank has the second highest at almost 5pc. In contrast, most tracker rates are around 2.25pc.
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And this;
In October Mr Elderfield said: "If the banks continue to act in a way which is so damaging to customers and which appears to take advantage of the current dysfunctional competitive environment, it seems they are courting the risk of a public policy response involving powers to impose direct restrictions on their rate setting capacity by the competition or financial regulatory authorities." Mr Kenny responded to the speech saying that if the regulator came to the Government seeking assistance, he would "certainly be prepared to engage with him with a view to increasing his powers of authority".

Mr Elderfield's deputy Jonathan McMahon yesterday dismissed the idea that the Central Bank should have a role in telling banks to lower mortgage rates.

"We can think of lots of very good reasons why regulation of interest rates would not be a good policy outcome. Much better could be done through the process of supervisory interventions."

This is understood to be a threat to send in Central Bank inspectors to carry out audits of the loan books of banks that are seen to be overcharging variable rate customers.
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ajapale said:
Back in early 2010 I made the following suggestion: Tracker Good! SVR Bad! Banks should be compelled to offer Trackers.

I believe banks should be compelled to offer fixed % margin tracker mortgage products. The would be free to charge whatever +x% rate they negotiated with the consumer.

This is not the same as a trackers set at an unsustainably low margin or against an inappropriate index.
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I think what people need now is surety of payment and a reasonable amount coming off the mortgage not seeing it swallowed up in interest.

This is the opposite of interest rate hikes, which is where the bailed out bankers and their investors want this to go - the implied threat is "if it doesn't, don't expect any more investment".
Their strategy not about returning to profits at all, its about ensuring the people continued in indentured servitude paying off loans that are growing.
At some point a variation of bad debt structure will need to be put on some mortgages to allow them to be paid off.
Further I believe the practice of offering very short term promotional rates should be outlawed.
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This is basically the sub-prime "trap" - a totally unsustainable model after the fist upward hike - a honey trap for the unwary - a form of theft from the utterly gullible by the unethical.
Banks should also be compelled to offer long term fixed rate mortgates for periods up to the life of the mortgate.
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Why not expand thsi to consider multi-generational mortgages - don't Switzerland offer 75 year mortgages - i.e. 3 x 25 or three generation mortgages?

Managed by a family trust fund or if necessary a company limited by guarantee I don't see why it cannot work.
The mortgager should be able to assign the interest to allow a form of selling if required.
Surprised no one has considered this option (apart from me).
After all, a mortage is only an extended loan term...


Of course, what's really shaken the banking sector to its core is that mortgages are secured on premises or land holdings the value of which "can rise as well as fall".
For at least a generation, Japan's deflation notwithstanding, part of the portfolios of many European investment banks and pension funds have been based on the rising value of property.
 
I have updated an earlier post with the following

Given that the government or Central Bank may have a role in the setting of mortgage rates, what should an appropriate standard variable rate be?

I asked a friend of mine in the UK for an insight into the UK market, and this is what he told me.

From what I gather, 90% mortgages are widely advertised, but the underwriting is harsh, and many applications are turned down or scaled back. Probably a good thing! Rates are typically 4% for a 3 year period, reverting to the lender's SVR. The catch is that SVR's are currently high at around 4.25%, and I believe these are not contractually linked to BBR. This means the lender can set its own lending margin, so borrowers have no certainty about future rate, either in terms of BBR, or SVR. In practice, I think most of the lending is being done at lower LTV's, mainly to people moving and with significant equity under their belts.
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So 4.25% is 3.75% above British base rate.

Add the same margin to the ECB would give a rate of 5%.

Brendan
 
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