Choice dwindles further in the mortgage market
Looking for a mortgage in Ireland has become more difficult over the last decade, but things have taken a particularly bad turn in the last couple of months.
Bank of Scotland/Hallifax, Danske Bank (formerly National Irish Bank) and Rabobank (which owned ACC) have all pulled out of the Irish market in the past 10 years.
And, of course, Anglo Irish Bank and Irish Nationwide Building Society both collapsed.
This year, Ulster Bank announced that after 160 years, they would exit the market in the Republic. The bank’s €20bn loan book is mostly made up of domestic mortgages.
In a letter sent out to customers last week, the bank said that “it was ready to support homebuyers with mortgage products”.
The letter went on to say, however, that by going ahead with a loan application “you are acknowledging and agreeing that you understand that Ulster Bank Ireland Dac has made an announcement that the bank has commenced a phased withdrawal from the Irish banking market which will be likely to result in the transfer of your product to another provider”.
Just last month, KBC became the latest bank to decide that the Irish market just wasn’t for them. The KBC Group holds about €5bn in deposits and accounts for 12.6% the Irish mortgage market.
Detrimental effect on market
In addition to the job losses and possible branch closures, these exits are going to have a major detrimental impact on the mortgage market, not least because KBC and Ulster Bank offered some of the best deals around.
It’s anticipated that large parts of their mortgage loan books will end up with Permanent TSB and Bank of Ireland.
Both of these mortgage providers sit at the costlier end of the market.
Daragh Cassidy, head of communications at bonkers.ie, points out that mortgage rates in Ireland are currently over double the eurozone average and are the second highest in the currency bloc.
According to the Central Bank, the average interest rate on a new mortgage in Ireland is 2.79%, which compares to an average of 1.27% in the eurozone, and a rate as low as 0.67% in Finland.
“This means a first-time buyer who takes out a mortgage of €250,000, which is being repaid over 30 years, is paying €1,026 a month in Ireland compared to a eurozone average of €835 and a repayment of just €767 a month in Finland.”
Riskier lending
There are various reasons why rates here are so high but the riskier nature of lending in Ireland is one of them.
“Although mortgage lending is supposed to be secured, lenders here have difficulties enforcing security and taking back ownership of a property in cases where a mortgage isn’t being repaid.
“This was highlighted in a recent study commissioned by the BPFI which showed that in cases where banks seek court action to repossess a home, they are only successful 11% of the time on average in Ireland, compared to 46% in the EU as a whole and over 80% in the Netherlands, Luxembourg and Denmark.”
“In addition, the judicial process takes longer here: 3.7 years against 3.1 years on average in the EU, and less than one year in Denmark and the Netherlands.”
Non-performing loans
As a result of these high levels of consumer protection, banks in Ireland have higher levels of non-performing loans on their books than banks in the rest of Europe.
And that, says Mr Cassidy, means that they have hold almost three times as much capital as European banks in order to balance that risk.
“Banks claim this impacts on the amount they can lend, reduces their profitability and ultimately impacts on their capacity to lower rates,” he says.
This is why Bonkers.ie has carried out research to see if Irish consumers would like to see a tougher approach taken with those heavily in arrears — if that would deliver cheaper mortgages.
The results are interesting. Some 45% of those polled are strongly in favour of a tougher stance.
Men, younger people, higher social groups and Dublin residents are much more likely to favour easier repossession — again, with that proviso that it would result in cheaper mortgages.
The research, which surveyed a nationally representative sample of just over 1,000 adults in the Republic of Ireland during March, found that just under a quarter of us (23%) are strongly against the idea of tougher stance on arrears, even if it meant cheaper mortgages.
Mr Cassidy acknowledges that while there are several reasons why mortgage rates in Ireland are above the eurozone average, the exit of both Ulster Bank and KBC seems to contradict the narrative that we’re all being ripped off and that banks here are raking in profits.
If that were the case, he says, more banks would want to do business here.
The simple fact is that lending in Ireland is risky.
"A big reason for that risk is that banks struggle hugely to enforce security when loans go heavily into arrears,” he said.
“In other words, when someone in Ireland decides not to repay their mortgage, for whatever reason, the court system makes it hugely expensive and time-consuming for lenders to recover the asset against which the loan was issued.”
While he would like to see this situation change, he agrees that no one wants to see a system where banks act aggressively against people who get into short-term financial difficulty, and that home repossessions should only be carried out as a last resort.
But it’s clear that the current system isn’t working.
"It is contributing to many homeowners having to pay thousands of extra euro in interest each year.”
“It should be possible to find a better balance between the need for housing protections but also the need for lenders to be able to deal appropriately with those who can no longer or are unwilling to repay their mortgage.”
According to the latest data from the Central Bank, 10,789 mortgages in Ireland are currently in arrears by between five and 10 years, while an additional 5,266 are in arrears for more than a decade.
