Irish Property Market chat II - *read mod note post #1 before posting*

Hold on, I don’t disagree with you. Expect for about what my position is. I said

1. looking for some evidence more repossession would actual lowers interest rates, not just that it’s better for the bank cause reduced risk etc. Like would it actually lower interest rates all things considered.
2. What if we consider the wider implications. The human cost of repossession should not be ignored particularly if you’re going to argue in favour of it. Is the cost of such a system worth it in the wider context?

I never argued that interest rates are absolutely not impacted by regulations around repossession. If it came across that way maybe I phrased it poorly. I find it bizarre how some people are framing my argument as emotional because I think considering other factors than just monetary benefit for some borrows to be important considerations. This framing is like me being called emotional cause I think we should consider it being maybe bad to nuke some weaker nations even if it might slow climate change for awhile. No one responding to me is really engaging with the debate. And now it’s devolved a bit into slight personal attacks on me being too emotional to discuss the topic with the big boys.

Are you a large bank that can afford the loss? What is the lender’s circumstance in this imaginary scenario? Have you engaged with them on refinancing? Did you properly vet them before lending them money they could not afford to repay, or are we assuming they and a significant amount of borrowers in arrears can afford to repay and are just refusing?

But that’s the system we have in place now. A lender must exhaust some clearly defined options with a borrower in arrears before they can start the repossession process. These options are overwhelming in the favour of the lender on paper, although if it goes to court it could go either way. The legal information is available on Citizen Information under Home repossession.

The lower interest rates argument is that it should be even easier for lenders to evict owners by removing/relaxing the protections in places intended to help those that genuinely need it currently.

A few might slip through the cracks for whatever reason, but if you just decide you don’t feel like paying what you can then the law is not in your favour. You can be taken to a court quite quickly, and when you lose you can be forced to pay the legal fees for both parties (unless I’m mistaken). If you genuinely cannot afford to pay then the process will probably be more drawn out and expensive for the lender.

A Competition and Consumer Protection Commission (CCPC) report from 2017 on the Irish mortgage market, p56:

The essential nature of a mortgage is that the loan is secured against an asset and is priced accordingly. The relative value of the security versus the loan also effects the price of the mortgage. This is clearly evident in lenders’ published schedules of rates for home loans with different loan-to-value ratios.

Correspondingly, if a lender is unable to access the security backing the mortgage this makes the loan a riskier prospect, affecting the interest rate the lender requires. Objectively, the scale of non-performing loans in Ireland is high relative to European peers and the number of loans in arrears over 720 days is also exceptionally high. Despite this, repossession rates are low.

Clearly there are restrictions on the ability of lenders to possess loan security in the event of default. As set out earlier, this results in higher loan prices/higher interest rates than would otherwise be the case.

This may be a few years old now, but it is still as relevant today to demonstrate 'the system' in place clearly comes at a cost as described above. More over, it is one of several barriers to new entrants that may consider entering the Irish mortgage market, a problem exacerbated by the confirmed withdrawal of KBC & Ulster Banks. Less competition rarely benefits consumers in the end.

What difference does it make if it is a Big Bank or some other lender? Either way it has an impact...the loss to a bank could be the difference with them having to cut costs (job losses) or not.

Thanks! This is the first reasonable response. I never meant to deny interest rates wouldn’t be higher because/if there are relatively higher protections. But that I’m not convinced that removing those protections would then decrease the rates, I.e. the savings would be passed on to the customer. Or that the risk of protracted repossession is the biggest, or at least a significant reason our rates are relatively higher. I also argued at what cost removing protections would have?

I’m willing to concede here. I’m willing to concede it may be a significant, even the most significant factor in relatively higher rates here.

It’s not good for anyone for me to keep shouting at the wall. I hope you all get an interest rate that makes you happy and that you never fall into arrears.

I agree with your view that banks would not necessarily pass on the savings to the customers in the current environment. As Dav010 said, increased competition is the best remedy for cheaper mortgage products and that doesnt look like happening anytime soon.

Just another cog in Ireland's dysfunctional housing market.

"Net household savings in 2020 were €14.2bn, but that wasn't a staggeringly high figure as in 2019 and 2018 it was net €13.9bn and €12.4bn respectively."

Don't think it's true. Don't know from where those numbers are taken, but something messed up with a numbers here. 2020/2021 savings definitely are more significant comparing with 2018/2019

That article from January 2021 provides "Irish household deposits in credit institutions reached an “historic high” of €125 billion at the end of 2020, increasing by €14.2 billion over the year, according to the Central Bank."

At September 2018, they were at €97.2bn.

https://www.irishtimes.com/business/personal-finance/household-deposits-reach-new-high-of-97-2-billion-1.3728846

source: money-and-banking-statistics-june-2021.pdf (centralbank.ie)

There is still an extra 1Bn in deposits compared to pre-covid

Who knows what will happen...

• The Economic recovery that everyone is banking on may never materialize and we could see even more QE being undertaken in an effort to stimulate the economy and in the process lead to more investors competing for property driving prices higher.
• The new houses that will come online may be priced higher due to an increase in building costs and may be snapped up by investors.

The UK Market has cooled down due to the withdrawal of the stamp duty breaks but is still 10%+ higher than a year ago.

The higher prices goes the less affordable housing becomes for first time buyers who are eventually locked out of buying and forced to rent which in turn provides a long term income opportunity for investors. For this reason alone I don't see a drop in house prices in the short term.

The kite-flying has started for the Housing For All strategy, with this story in the IT yesterday. Given the total failure of the private sector to deliver sufficient housing to meet with demand, this is likely to be the first of several policies outlined in the Housing For All strategy for the State to take more of an involvement directly in the provision of housing. This is something which has been advocated for and is supported by SF, so I wonder if the best way to beat SF is to in fact just plagiarise their housing policy?

We will see in time whether the US housing market is past it's peak or not. I think what you are seeing there at the moment is that builders are not building because they can't guarantee that they will be able to sell at a profit. If this is the case then it will lead to a shortage in supply similar to what happened in Ireland which will keep houses prices elevated and drive people into the rental market which in turn will see investors buying the properties.

Personally I think a lot of FTB managed to save a lot more that 5k-10k during the year as a lot of them moved back in with parents thanks to being able to work from home and didn't have rent to pay. The saving on Rent alone would equate to 22-25k and that is before any additional savings such as transport, lunches etc... Childcare would be another 12k or more and If I was to guess I would say that many couples managed to save 40-50k during the past year. Obviously not every couple would have benefited to the this extend but I think that there are enough people out there and this combined with a lack of supply means that their are still buyers out their to sustain the prices.

If you take into account parents being able to save during the period and the lack of return that they would get in a bank or any investment means that they are far more likely to be able to help out. This also contributes and means that the LTI limits become less irrelevant to the lucky few who are in such a position.