Investec puts €300m plan for new mortgage lending on hold
New repo rules turn new banks off Irish market
Investec, the South African-owned bank, has put its plans to offer up to €300m in new Irish mortgages on hold, as it reviews changes in the market place which is increasingly dominated by State-owned zombie banks.
This is seen as a massive blow for consumers with mortgage lending at a 40-year low. The IBF/PwC mortgage report showed that just 15,881 mortgages were issued last year – the lowest amount for any year since 1973.
It is understood that Investec, headed by Michael Cullen, views the Irish mortgage market as increasingly uncertain because of recent changes to the repossession and insolvency regimes. These changes make it harder for banks to repossess properties if they are Personal Dwelling House (PDH) loans.
Sources told the Sunday Independent that while Investec remains interested in entering the mortgage market, it has growing reservations about being able to get its money back if loans go bad because of new repossession and insolvency regulations. The rising cost of litigation has now to be factored in to mortgage pricing.
Last August it emerged that Investec was planning to enter the mortgage market, aiming to become the first new lender in Ireland since the start of the financial crisis in 2008. The bank had indicated that it would offer low-priced variable rate mortgages.
Investec's Irish balance sheet is rock solid, which meant that it is not hamstrung by loss-making legacy loans or trackers. This would enable it to offer highly competitive rates.
The bank, which already offers consumer savings products and stockbrokings services, as well is its growing commercial business, had planned to use a broker network to roll out up to €300m of new mortgages. The bank was initially targeting the Dublin market. Sources told the Sunday Independent that the bank was looking at loans based on income levels rather than using traditional loan-to-value metrics. Investec declined to comment.
The exit of Danske Bank from the mortgage and personal banking market is a catastrophic setback for the sector, which is now dominated by State-controlled lenders such as Permanent TSB and AIB. The banks are mandated to lend at government-imposed levels, which are often lower than the privately owned rivals.
The mortgage market has shrivelled since the banking crisis began in 2008, with the exit of Halifax/Bank of Scotland (Ireland), Irish Nationwide and assimilation of EBS into AIB. Rabobank's ACC and a raft of subprime lenders have also fled the market.
It is understood that the €200m bank levy introduced by Finance Minister Michael Noonan in the October Budget has had the major unintended consequence of deterring foreign-owned banks from ramping up operations or entering the market. One senior banker told the Sunday Independent that fears over the unpredictability of the banking regime and politically led charges against the financial sector have made Ireland less attractive.
The issue of strategic defaulters is also making new banks unwilling to enter the market. Some observers have suggested that a potential solution to the problem would be if customers had to make a declaration identifying their personal dwelling house in their tax returns. This would mean that homes and buy-to-let properties could be easily identifiable. It is far easier for banks to repossess buy-to-let properties.
Bankers have suggested that as many as one in five troubled mortgage holders may be strategic defaulters. The difficulty in resolving these debts has caused a paralysis in sectors of the property market.