Wednesday 7 December 2016

Banks must follow PTSB and release mortgage figures

Published 05/06/2016 | 02:30

PTSB only allowed an exemption on 11pc of mortgages it approved in 2015, even though it could have allowed exemptions on 15pc mortgages issued. So why didn't it? Photo: Steve Humphreys
PTSB only allowed an exemption on 11pc of mortgages it approved in 2015, even though it could have allowed exemptions on 15pc mortgages issued. So why didn't it? Photo: Steve Humphreys

The Central Bank's caps on mortgage lending has to be seen in a fresh light after it emerged that Permanent TSB did not use the exemption to the rules last year in as many mortgages as it could have. Under the rules, first-time buyers must have a 10pc deposit on the first €220,000 they borrow and a 20pc deposit on the rest. Other borrowers must have the full 20pc deposit.

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However, the Central Bank restrictions do not have to apply in 15pc of the total amount given out in mortgages in any calendar year. So it was particularly surprising when a Dail question from Sinn Fein's Pearse Doherty showed that PTSB had only allowed an exemption on 11pc of its 2015 mortgages. The difference was about €18m in mortgages that it could have awarded outside of the cap.

So why didn't it?

It could be trying to manage its exemption cases throughout the year and miscalculated how many of them to award. But it missed by 4pc - quite an amount.

The figure suggests that PTSB may not be willing to lend out as much money for mortgages as people might have thought. If that is the case, then the banks are holding back mortgage lending more than the Central Bank rules.

The rules are being blamed for wrecking the mortgage and housing market by some people - and even Minister for Finance Michael Noonan was in favour of having them reviewed, with a view to easing up on them.

The problem here is that Bank of Ireland and AIB would not release a similar breakdown of their figures. At least PTSB provided the information, which is very significant in trying to understand what is really going on in the mortgage market.

If we assume that the PTSB figures were not just a blip, and the bank (whose primary business is mortgage lending) was not alone in its approach, then the whole debate about these caps needs to change.

The debate should be about the banks and not the Central Bank lending rules.

You have to go back to why the rules were introduced in the first place. House prices, especially in Dublin, were rising at an alarming rate. There was evidence that the banks were beginning to loosen up on their very restrictive post-crash lending criteria. The Central Bank decided to intervene.

As recently as March of this year, the Central Bank said that commercial banks and mortgage brokers are unable to uphold "prudent" credit standards.

In other words, if left alone, they won't always act responsibly - a €62bn lesson we have all been forced to learn.

The question is: why would the banks apply even tighter mortgage criteria across a full-year's lending than they are obliged to do? It could mean they are choosing to be ultra-cautious.

Yet banks were not big fans of the mortgage caps being introduced at all. Ulster Bank for example, wanted a 90pc loan-to-value (LTV) to apply on loans up to €500,000 and 80pc above that.

When the new LTV rules were being introduced, KBC Bank didn't believe they were the way to go, while Ulster Bank added: "The proposed limitations on lending will, in our view, put this recovery at risk and will serve to undermine the overall shared objective of ensuring a fully functioning mortgage market."

It is more than surprising to see a bank like PTSB not take up its full quota of exemptions to the rules. Mortgage figures for April this year show a sizeable spike in approvals that month, after a lacklustre opening three months of the year.

Perhaps banks are trying to manage the number of exemptions they let through, haven't fully mastered it and are then pushing through lots of mortgages in one go?

We need to know what is really going on in the mortgage market. It is impossible to have a meaningful debate about the merits, pitfalls and impact of the Central Bank rules without a breakdown of mortgage figures similar to that provided by PTSB.

The other banks should follow suit.

Basic questions remain unanswered in rural broadband plan

The debate about providing adequate broadband services to rural Ireland is still heavily focused on how quickly it can be delivered. But it emerged last week (through Minister for Communications Denis Naughten) that fundamental questions about who should own this new broadband network have yet to be answered.

Companies pitching for the State rural broadband contract include Eir, Siro (ESB/Vodafone joint venture) and Enet. They have indicated that it could be provided more quickly than the targeted seven years.

But at what price?

Denis Naughten said during the week that questions still remain about whether any new network infrastructure part-funded by the State would revert to State ownership.

The private companies could build it and avail of a €300m State contribution. But unless rural homes are charged a fortune per month, the state intervention will have to involve an ongoing subsidy.

The State's problem here is the old Eircom flotation. Back in 1999 it sold off the company and the telecoms infrastructure along with it. Officials and ministers do not want to subsidise a private company to build and run a piece of infrastructure that would remain privately owned.

I remember attending telecoms conferences 13 years ago where these issues were discussed and posed as a conundrum that would have to be resolved at government level. Who will pay to build broadband infrastructure in uneconomic areas? And who will then own the infrastructure?

Yet, in 2016 these fundamental questions have not yet been answered. It appears that pricing, subsidy and ownership go to the heart of the continued delays in running the tender process.

Private companies could build it in three years they say, but they would probably want to own it. At this stage, close to one million people around the country who don't have proper broadband at all, don't care who builds it. They just want the problem solved.

Surely it is time to look at more innovative funding solutions to fast track this process?

There is still several billion euro of State money in the Irish Strategic Investment Fund (ISIF) looking for a home.

The fund has two basic investment criteria; its investments must aim to be profitable and must have an economic benefit too. One of its biggest investments to date was Irish Water.

Investing a billion in rural broadband would be economically beneficial but would not be "bottom line profitable".

But what if ISIF was to take a stake in the wider ESB Group? The fresh capital could fund the rollout of rural broadband, while ISIF would get a dividend from the profits of ESB itself. It would be a commercial decision with a wider economic benefit.

It might be seen as a huge advantage to ESB over other private sector operators vying for rural broadband.

However, ownership of the network could at least remain in a State-owned company in a fully regulated telecommunications sector.

Alternatively, ISIF could take a stake in whatever entity wins the tender.

Either way, the glacial pace of rural broadband development needs to quicken.

Sunday Indo Business

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