Hey MB, even though the press think you’re an expert, that’s no reason to expect that you’re wrong . I think though that we won’t see 5% before 2012 considering that the two main lenders are offering between 3.1% and 3.4% at the moment. We’re unlikely to see more than 1% to 1.5% variable rate increase next year considering likely euro sovereign weakness and AIB nationalisation.
Off-load one of the zombies to a huge European bank (with a part state guarantee) and rates remain ultra low.
At what rates are the banks borrowing at ?
Lending rates *have *to be higher.
I think it’s more a question of the duration that banks have been borrowing at…
True, of course.
It could be said with the IMF/EU bailout, we know our borrowing costs for the next few years.
Just add 1% or 2% on top of that to get the variable rate.
Yep. I’m of the opinion that the banks are remaining stum on this one as long as they can. They needed the bailout to go through and they need the latest cash injection. Bad news early January IMO. At least 5%. That’s very very conservative given what state is borrowing at from IMF/EU and what market rate on bonds is.
It doesn’t work like that. Risk has to be priced in. Risk was incorrectly priced over the last 5 years, hence market is now panicking and shooting up rates.
Any bank coming in will price based on sovereign risk and market risk. The risk will just be priced into their margin rather than the margin that they borrow at. End consumer rate will be the same.
Totally disagree - that implies the banks (foreign and domestic) have learned their lesson. I don’t think they have. If you beckon in Barclays -and give them a backstop- they will wipe out any legacy Irish competition via lower funding and, therefore, lower rates.
In banking parlance, there is a measure called the “Net Interest Rate Margin” that is used to determine the spread that a bank makes from their loan book, less the cost of funding (paying depositors interest, etc.). The very best banks might have a NIM of over 4% (Wells Fargo for example averages at just over 4.5%). Generally though, the average bank would have a NIM of about 2.5%-3%. Irish banks however are in much worse shape than this. AIB/BOI would have a margin of about 1.1%-1.2% which is regarded as being awful. Irish Permanent has a NIM of 0.8%, which is possibly the worst figure I have seen in any bank, ever. Since funding costs certainly won’t be getting any cheaper, the only way for a bank to make any dough is to increase the rates they’re charging.
The reality is that mortgages in this country should be much more expensive then what they currently are. To put the banks back into positive earnings the very least we would need is a 1% hike in the mortgage rate.
What they need, more than anything, is a way to kick all the Tracker Feckers onto Fixed or Variable mortgages.
Paying your Tracker - The most patriotic way to break the bank.
Absolutely. Half the loan book of Irish Permanent is on tracker mortgages losing money, hand over fist. Perhaps we will see a two-tier lending system? Those on sweet tracker deals, and the rest on expensive variable rates, subsidizing those on the trackers.
You look at the numbers that any Irish bank is going to have to take to try and raise term funding (short of using deposits) and there’s no way the rest of the loan book is close to subsidising it.
It’s definitely a two-tiered system - but I can see banks getting much more aggressive on credit worthiness, repayment punctuality, original loan documentation, life insurance cover, etc. - anything to test the viability of the Tracker Fecker.
This is the flip side of the argument for mortgage forgiveness. The prevailing wisdom on here seems to be that if you signed up for a mortgage you should either stick to the commitment you made and meet your monthly payments or give up the house. By the same token, if you are meeting your commitment as per the original agreement then you should expect the bank to stick to their side of the bargain and not try to move the goalposts re: interest rates. Arguing to push people off trackers onto higher rates using the rationale of some economic force majeur is no different from arguing for mortgage forgiveness allowing people to remain in houses they can’t afford.
(For the record I am not on a tracker mortgage or any mortgage for that matter. The only mortgage I ever had was at 11% in another country so you can be damn sure I paid it down as quickly as I could.)
But that would be in total contradiction to Bank of Scotland who have shut down BOSI and Halifax in this country. Bottom line is banks are interested in their share price and the words Irish and Mortgage stink at the moment which would kill their share price of any bank entering the market.
Surely he means by 5pc - not to 5pc!?!
It wouldn’t impact the share price of a huge bank with a large backstop. Obviously you need the backstop or it’s not possible, the BOS example did not enjoy such a guarantee. Personally I think it’s inevitable that a large foreign bank will be “incentivised” to take on the corpse of AIB and they’ll price lower than the domestics can.
In the short term, I predict the opposite i.e. people with trackers are actually paying it every month for fear that just one or two months’ arrears makes them delinquent and they lose the tracker rate. People on variable and fixed have nothing to lose and a whole year’s worth of moratorium, so I would expect a greater level of performance on trackers than on variable and fixed.
A query to the board following on from JS’s prediction.
If the tracker loan books were bundled up and bonded off to the markets(see below)with a sweetener,could that have any disadvantageous consequences for the newly securitised mortgage holders?