Wednesday 21 March 2018

Competition in the mortgage market? You must be joking

Charlie Weston tweets at @CWeston_Indo. Stock image
Charlie Weston tweets at @CWeston_Indo. Stock image
Charlie Weston

Charlie Weston

Competitive pressures are in short supply in the mortgage market in this country. On the surface, it might appear that we have plenty of lenders offering mortgages, leading to the conclusion that we have a healthy home-loans market.

But any conclusion like that would be wrong. Yes, we have quite a few lenders.

There is AIB/EBS, Bank of Ireland, Ulster Bank, Permanent TSB, KBC Bank and Pepper Money. There is also Dilosk/ICS on the buy-to-let side. That looks good, and the different lenders offer a variety of interest rates, cash-back offers and incentives, like offering to pay conveyance fees, to entice first-time buyers and switchers.

But the big problem is that the market is highly concentrated. Just three banks have a mortgage market share of 80pc, according to the Competition and Consumer Protection Commission, quoting Central Bank data. In other words, AIB (and its affiliates EBS and Haven), Bank of Ireland and Ulster Bank issue most of the mortgages. Such a situation is anything but competitive and should be a real concern for all of us.

This lack of competition is one of the key issues to be looked at by the Competition and Consumer Protection Commission after it was asked to do so by the Government.

High levels of concentration may lead to "tacit co-ordination" which operates as an impediment to competition, the commission said in a consultation paper on the structure of the mortgage market.

This might help to explain why we have some of the highest variable mortgage rates in the eurozone. Bank of Ireland has set its face against reducing its variable rates, with bank boss Richie Boucher openly admitting recently he was deliberately trying to get his variable-rate customers to fix. AIB has been cutting its rates, while Ulster Bank has opted to cut rates for those who have built up equity in their homes, but they are still high.

And fixed rates are also sky-high in this country compared with the rest of Europe.

New lenders seem reluctant to enter this market, put off by low levels of competition, high levels of mortgage default and difficulties repossessing homes when people stop paying.

The review by the Competition and Consumer Protection Commission is more akin to a study than a competition probe, but could still throw up some useful pointers on why our mortgage market performs so poorly for consumers.

The taxpayer rescued broken banks during the financial crisis, the least we can now expect is a transparent and highly competitive mortgage market.

Charlie Weston tweets at @CWeston_Indo

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