Irish Financial Review

Mortgage payments expected to fall with ECB rate announcement

Irish mortgage holders may be in for a welcome financial boost tomorrow.

European Central Bank officials meeting in Frankfurt are expected to reduce the benchmark interest rate below 1% for the first time in the bank’s history.

Much needed rate cut

Rate cut to provide financial boost for mortgage holders


A rate cut of 25 basis points (quarter percent) now seems increasingly likely.

Tracker mortgage holders will immediately benefit from the announcement. There are an estimated 400,000 tracker mortgage holders in Ireland.

Those with standard variable rate mortgages (of which there are an estimated 200,000) are also likely to benefit, although this will depend on the individual bank as not all banks passed on the last series of ECB rate cuts announced in November and December.

Ulster Bank was the worst of the major banks. It refused to pass along any of the November of December rate cuts (it later announced a separate spring rate cut) so it will be interesting this time around if it looks to appease customers with a rate cut as a goodwill gesture in light of their ongoing IT and account reconciliation problems.

Bank of Ireland and AIB alternated, passing on some or all of the rate reduction in November and December. EBS also passed on the rate reductions, but not the full amount in one of the months.

NIB had perhaps the worst possible timing. Not only did it refuse to pass on any of the rate cuts, but it also announced a massive rate hike for its standard variable rate customers at the same time.

KBC and Permanent TSB were the best of the lenders as both passed along the full value of the ECB rate cuts. However, Permanent TSB was making up for the series of awful rate hikes it had subjected its SVR customers to earlier. Permanent TSB had hiked interest rates by a massive 2.5% before being given State support.

Below is a breakout of the outcome of a 25 basis point cut.

Tracker 25bps decrease
Mortgage Amount Current Payment (2.00%) New Payment (1.75%) Decrease
€400,000 €1,478.48 €1,428.97 -€49.51
€300,000 €1,108.86 €1,071.73 -€37.13
€250,000 €924.05 €893.11 -€30.94
€200,000 €739.24 €714.49 -€24.75
€100,000 €369.63 €357.24 -€12.39
Based on 30-year term, ECB + 1%

Mortgage lending points to all-time low in 2012

The number of mortgages granted in 2012 could fall to an all-time low as lenders continue to restrict lending.

Lending levels in 2012 could hit all-time low

Based on the first quarter figures published by the Irish Banking Federation, a total of just 2,630 mortgages were granted during that period. However, when re-mortgage and top-up loans were stripped out (these loan are not used for a property purchase), just 2,213 mortgages were granted to first time buyers, existing mortgage holders and those looking to purchase an investment property.

First quarter statistics can provide important early indications as to the overall level of mortgage lending activity for a given year. This was certainly the case for 2011, where lending activity in the first quarter turned out to be a very proxy for the full year and where lending fell to a 40-year low.

2012 is off to really bad start. If the first quarter figures hold up for the full year, 2012 could see fewer loans being granted than at any point since records began in 1970.

In 1970 a total of 8,929 loans were granted.

In 2012, as few as 8,852 loans could be granted.

What is even more interesting is the number of mortgages relative to population and here, we have a total wipe-out.

In 1970, there were just over 2.9million people living in the country.

Today, the population is just over 4.5Million

There has been a population growth of over 55% since the early 1970’s. However, it is extraordinary to think that a society that had been coaxed into becoming a ‘credit society’ through a combination of easy access and low-cost credit now has less access to credit than at any point since records began.

Without a functioning credit market, especially a functioning mortgage market, it is difficult to see a meaningful return of buyers to the property market.

Year Mortgage Units Data Source
1970 8,929 DOE
1971 11,728 DOE
1972 14,168 DOE
1973 16,286 DOE
1974 18,313 DOE
1975 21,241 DOE
1976 22,051 DOE
1977 22,039 DOE
1978 22,648 DOE
1979 24,742 DOE
1980 26,357 DOE
1981 26,241 DOE
1982 24,113 DOE
1983 27,927 DOE
1984 27,980 DOE
1985 28,060 DOE
1986 27,632 DOE
1987 28,379 DOE
1988 36,939 DOE
1989 38,580 DOE
1990 31,051 DOE
1991 33,720 DOE
1992 42,044 DOE
1993 38,490 DOE
1994 46,483 DOE
1995 47,035 DOE
1996 56,009 DOE
1997 57,901 DOE
1998 61,407 DOE
1999 70,817 DOE
2000 74,258 DOE
2001 66,786 DOE
2002 79,292 DOE
2003 84,749 DOE
2004 98,709 DOE
2005 107,680 DOE
2006 111,253 DOE
2007 84286 DOE
2008 53691 DOE
2009 25172 DOE
2010 18382 DOE
2011 11,131 DOE
2012 8852* IBF (estimated based on 2,213 units in Q1)

Ulster Bank fails to impress

We are entering the third week of the missing records at Ulster Bank.

Ulster Bank has damaged its reputation as well as the trust customers have in it.

At this point, the problem has moved beyond inconvenience, it is now a major concern. After all, Ulster Bank is a major bank in its own right, as well as being part of one of the largest banking groups in the UK.

How could a bank such as Ulster Bank have gotten it so wrong? After all, if a customer of the bank were unable to make a monthly payment using the same reason as Ulster Bank uses now; that it cannot locate the records, it is hard to imagine that the bank would be too lenient in their handling of that customer.

Perhaps the reasons for the ongoing problems at the bank are valid, but they are now unacceptable.

The Central Bank of Ireland now needs to step up its efforts and take considerable action to ensure that this problem does not happen again.

Too many people rely on banking to protect their money and ensure their bills are paid. More important, electronic and online banking are growing in importance more and more. Denial of access to funds cannot be tolerated. This is where Central Bank vigilance and enforcement needs to play a major role and deterrent against flimsy internal controls.

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