With mortgage completions to end 2021 at 10.5 billion euros and expected to reach 14 billion euros in 2023 and 17 billion euros in 2025, one might suggest that there is nothing wrong with the. mortgage market, but there are a number of things that need to be changed and revised.
The Central Bank is currently engaged in a consultation process to review the rules introduced in 2015. Only, in a global context, we have LTI (loan to Income) and LTV (loan to value) thresholds which apply which do not apply. have not been modified since their presentation in 2015.
A “revolution” occurred in our market in October when two lenders, Avant Money and Finance Ireland, introduced 15-30 year fixed rate mortgages at less than 3%. The introduction of these long-term fixed rates dispels the central bank’s fear of making adjustments to the rigid LTI and LTV rules. In fact, only the UK and Denmark out of the 27 EU countries apply this method to determine what you can borrow.
In the UK the LTI is 4.5 times the salary while in Denmark it is four times. We need to move to the DTI Debt / Income or Debt Service / Income DSTI Model.
As a simple example, a single person earning € 50,000 can get a maximum mortgage loan of € 175,000 under DTI rules, using 35% of their net income, the borrower can borrow € 210,000 and get a loan. 30-year fixed rate of 3.1%. Using 40% of the net income gives a mortgage of 240,000 €. The Residential Tenancies Board reported in July that the average tenant pays 36% of their net income in rent.
All lenders struggled with service in 2021 and while there are signs that some lenders are improving, borrowers and brokers should get better service from their lenders. The problem is, all lenders have their own proprietary systems, and some haven’t changed in 20 years. You have the ridiculous situation of some lenders looking for pages and pages of documentation scanned for them to enter the information needed to start the mortgage underwriting process.
New lenders have more efficient systems, but old lenders are lagging behind. The days of lenders launching their own systems are long gone, shared services are the way to go.
With the advent of the Central Credit Register in July 2017 by the Central Bank, lenders have excellent credit information on potential borrowers. All lenders require six months of bank statements as part of the documentation to process a mortgage, why? It should be reduced to three months because, coupled with other supporting documents, the banks have more than sufficient information to assess the borrower’s ability to pay.
It is very encouraging to see that two of the new lenders on the market, Avant Money and ICS Mortgages, do not require mortgage or loan statements and Avant Money also do not require credit card statements, why ? Quite simply because the information is on the CCR. All lenders should take this approach. The service proposal must meet and respect borrowers and brokers. In 2021, that was not the case.
2022 must be the year when cashback incentives are withdrawn from the market. We know that they are worth 0.4% in terms of interest reduction for the consumer, or a saving of € 63 per month over 30 years on a mortgage of € 300,000 or € 22,680 over 30 years. Traditional lenders must compete on price and service.
All markets need competition, just like ours. We are losing Ulster Bank and KBC, which held a 26% market share. While this creates new business opportunities for the eight existing lenders, three are owned by AIB. There is room for new players. Competition is healthy. The three new entrants to our market have the cheapest interest rates and do not offer cash back. Two of these lenders exclusively offer fixed rates for 15 to 30 years.
Michael Dowling of MD Dowling Financial is a leading mortgage and debt advisor