Mortgage lender eyes ‘rich pickings’ in Ireland

A new entrant is eyeing potential “rich pickings” in the Irish mortgage market because home lenders here have failed to cut their standard variable rates, one of the country’s leading mortgage experts has predicted.

Michael Dowling, who chairs the mortgage committee at the Irish Brokers’ Association, said the unnamed new lender has advanced plans to tap key foreign investors to start offering home loans here because they know mortgage rates in Ireland are the most expensive in the eurozone.

The investors will seek a licence from the Central Bank and look to “make a splash” by the end of 2016, offering to undercut — by a significant half a percentage point — the cheapest existing standard variable rates on the Irish market, said Mr Dowling.

They aim to entice existing borrowers with an appealing low standard variable loan rate to switch from their existing lenders.

Mr Dowling said the current offerings from lenders are not working.

The so-called ‘switcher market’ is still relatively small because there is no huge benefit for borrowers to switch to lower-priced fixed rates from existing variable rates.

The diminished roster of Irish mortgage lenders has since last summer encouraged borrowers to switch from standard variable rates to lower-priced fixed rates.

But the fixed rates are still too expensive, he said.

“Borrowers should have lower standard variable rate loans too,” Mr Dowling said.

“Because eventually after switching to a fixed rate, you have to come back to the higher level standard variable rate after, say, three years. Mortgages are for 30 years, not just for three years.”

Both standard and fixed rate home loans in Ireland are among the highest in Europe, he said.

Central Bank figures published yesterday showed that, on average, home loan rates, including for owner-occupiers and buy-to-let investors, have fallen.

“The sharpest fall was observed for fixed buy-to-let rates over three years, which declined by 113 basis points to 5.11% in the year to the end of the fourth quarter in 2015” the Central Bank said.

“Variable mortgage rates for primary dwelling houses also declined, falling by 44 basis points to 3.76% during the last quarter of 2015.”

CSO inflation figures published earlier this week suggest the declines in mortgage rates have continued since the start of the year.

Its consumer price index for March showed mortgage interest costs dropped 0.5% in the month and by 7.6% in the past year.

The mortgage sub-index suggests mortgage costs tumbled by over a third since December 2011.

However, many analysts say the fall in mortgage costs here do not fully reflect the sharp rate cuts made by the ECB, while the lack of competition after so many banks went bust during the crash has kept mortgage rates at elevated levels.

Mr Dowling said the new entrant may price its home loans for existing borrowers at an 80% loan-to-value at half a percentage point below the very cheapest standard variable loans in the Irish market.

That suggests the new lender could offer borrowers a standard variable rate of 2.75% at a loan-to-value of 80% of the property.

Mr Dowling said that, allowing for various conditions, AIB at 3.35% for a 50% loan-to-value, and KBC Bank at 3.25% for a 60% loan-to-value, currently offer among the cheapest variable rates in the market.


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