Fat chance of mortgage nirvana under revised EU rules

The EU wants to create a true common market for mortgages.

And in doing so, it plans to remove ‘obstacles’ that currently hinder that common market presently….or at least hinder them in the eyes of the EU.

Ana Botin of Santander
Ana Botin of Santander

But the world according to the EU and the reality of the world the rest of us live in are often poles apart.

While the removal ‘obstacles’ is never a bad thing, in reality, it is the commercial realities that make markets attractive, or not.

Ireland has about 4.5 million residents. In the eyes of Santander, Deutche Bank or Credit Agricole, its a modest prize at best.

From a market attractiveness perspective, mortgage banks will consider two primary factors:

  1. The capacity for profit and,
  2. The potential for loss prevention

In the Irish case, the potential for profit will be a function of a lot of calculations, not least the operating costs of servicing the Irish market (including complying with local regulations as well as the logistics of servicing the local market).

But on the loss mitigation, banks will have a major cultural reality to consider.

While some political leaders will be at the front of the line welcoming new entrants into the Irish market, the reality is those same political folks will at the front of the line protesting property repossessions if and when it ever came to that. And this is a key point, in the land of lending, it is the capacity to recover money through the process of repossession that makes mortgage lending possible in the first place.

This is not to suggest that repossession is a good thing, its not. Repossession is the end result of some very unfortunate circumstances that impacts families severely. But, in banking and mortgage lending, repossession is also the stop-gap measure lenders have in order to protect the vast amounts of money they lend out in the first place.

So, while some politicians will crow about the need to reduce mortgage rates generally, they often fail miserably to connect the dots and one of the biggest dots at the end of a legal process is the right to take back ownership.

It is doubtful that Ana Botin is pulling an all-nighter with her Santander colleagues on how to challenge Bank of Ireland in the mortgage market and neither is John Cryan over at Deutche Bank. For them, even the most cursory piece of research will show that the Irish mortgage market is not an attractive one.

Ireland is in the midst of a severe mortgage drought. It started in October 2008 and signs are that it will continue for some time to come.

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