Michael Dowling: We need a minimum of two more lenders in Ireland
There will be a surge of mortgage applications in the first quarter of 2023 as house-hunters take advantage of new lending rules. File Picture: Denis Minihane
The new year will begin with good news for mortgage customers who are first-time buyers, as the new Central Bank rules will increase the LTI, loan to income, multiple from 3.5 times salary to four times salary as the standard. There will still be exceptions available above this multiple at the discretion of each bank based on its lending policy and appetite for risk.
For second-time buyers, they have the benefit of increased loan-to-value (LTV) thresholds where 90% of the purchase price is available as the standard from 80%.
These changes will result in a surge of mortgage applications in the first quarter of 2023, as most first-time buyers in the last two months of 2022 have waited to submit their applications pending the new rules.
The mortgage market in 2022 will show completions of circa €13.9bn and 2023 will show an increase to circa €15.5bn, presenting good opportunities for the small number of banks operating in our market.
The bad news is that all customers, new and old, face additional increases in mortgage interest rates. The ECB has increased rates from 0% to 2.5% in the last five months and expectations are that rates will rise a minimum of 0.5% with 1% possible by June 2023.
The reality is that these increases will add €460 per month or €5,500 per year to the cost of servicing a €250,000 mortgage over a 30-year term.
I expect rates to remain at these levels for two years at least, which will see an increase in mortgage arrears in the latter part of 2023 and beyond where some borrowers, will struggle to meet the new increased mortgage repayments.
With the exit of KBC and Ulster Bank, which had 25% market share between them, the competition has been eroded, which is not good for consumers.
Finance Ireland and ICS Mortgages were very welcome new entrants in the last three years and held a 15% market share between them in 2022.
However, they have not been lending in the last three months and unless they can find an alternative source of funding at rates comparable to the four remaining players in the market, there is a danger in 2023 that these two lenders could exit the market.
As the year begins, we have effectively only four lenders, AIB, which owns EBS and Haven, Avant, Bank of Ireland and Permanent TSB.
With a population of 5m, which is expected to grow to 5.2m by 2030, we need more lenders. We need a minimum of two more lenders with the capacity to lend for the long term.
The credit union movement, with potentially €5bn to lend, is an obvious candidate but the volume of mortgage lending to date is less than 1% of the market, which demonstrates the challenges of lending at a significant scale are a long way from being resolved.
An Post has announced on a number of occasions its desire to enter the market but again it is frustrated in finding a partner who can facilitate its ambition to increase the range of financial service products it can offer.
Revolut and other “challenger” banks have the service proposition, but they need to understand the mortgage process and respect the role of the Central Bank in its desire to have appropriate safeguards in place where a mortgage is being sold — it is not like selling a term loan.
In 2023, brokers and consumers will want to see a significant and sustained improvement in the service offered by the banks. All lenders have faced significant service delays since July 2021, and it is incumbent on all of us to improve the mortgage approval and drawdown process.
There are several very simple changes that can be made to improve the service proposition. Brokers, consumers, the Banking and Payments Federation Ireland and the Central Bank need to sit down and review the process, which is not acceptable in a developed economy like ours.
We saw the benefit of this type of engagement when the Central Bank listened to brokers, banks, other consumer advocates and most importantly consumers themselves in 2022, when the changes to the macro-prudential rules were announced. We need a similar forum in 2023.
One of the solutions to our housing crisis is facilitating the downsizing for older homeowners who want to sell and move to smaller, more suitable accommodations.
The most common obstacle to this process is the unavailability of bridging finance, which “bridges” the gap between selling an existing property and purchasing a new one when you need to fund your new purchase before the sale of the current property. The re-introduction of this product would help and should be considered by banks in 2023.
- Michael Dowling is managing director of mortgage specialists Dowling Financial
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