By Frank Conway
As popular as it might sound, the fair mortgage rates campaign in Ireland is populist and flawed.
While some political parties have backed the campaign, the Irish Central Bank and the leading consumer agency have not. Neither does the European Central Bank which views such campaigns as severely misdirected that will ultimately hurt the consumer.
Despite their best intentions, it is politicians that have usually sowed the seeds of mortgage market dysfunction. One only has to think back to some disastrous policy decisions on issues such as the stamp-duty thresholds, Section relief and even failure to reform draconian debt laws that have hurt borrowers over the decades.
Today, there are still fewer mortgage originations than at any point since 1987. In 2017, it is possible there will be no more than 27,000 – 28,000 mortgages drawn down. This is what was drawn down in 1986 / 1987 so we are still hovering at a 30-year low.
If the politicians really want to make a real difference in the Irish mortgage market, instead of writing legislation that will probably do more harm than good, what they should focus on is creating competition.
If those parties that argue for greater controls over mortgage margins, instead of arguing until the cows come home, they should start building the foundations of an alternative mortgage market that WILL force commercial lenders to compete. This is how mortgage giants such as Freedie Mac and Fannie Mae in the US got their start and both have been providing liquidity, underwriting standards and rate benchmarks ever since.
Instead of using public shame, campaigners here should develop public fear; fear of loss of business, fear of real competitive alternatives that are driven by value for the customer and market share. If the campaigners are correct, if current margins on mortgages are ‘too high’, then a not-for-profit mortgage platform should force real change. And there could be a number of routes to market, including pre-approved brokers, credit unions and even banks. But also, the not-for-profit alternative should highlight the true cost of lending in the Irish market once-and-for-all. After all, if the State cannot be the measure of the true price floor, surely then we would all know that the case for a fairer mortgage market was ever only hot air and populist mantra.
