There is a delicate balance between market dominance and healthy competition. The mortgage business in this country is a particularly good case study of the impact of competition and what happens when competition falls. Especially since we have a small population.
Before the financial crash more than a decade ago, we had a very competitive market.
Banks like Bank of Scotland and Danske Bank have fueled the market with highly competitive tracker mortgages. The other banks followed.
The fact that they all mis-rated the product partially explains the crash.
In a few years, a less hectic mortgage market settled down with fewer players. AIB and Bank of Ireland have continued to dominate, but they have by no means had it all their own way.
They were kept honest by the likes of KBC Bank Ireland and Ulster Bank, two of the most competitive and innovative players in the home loan market, before ceasing to take new business earlier this year.
Around the time these two banks announced their intention to exit the market, we had the fortunate entry into the residential property market of two non-bank lenders, namely ICS Mortgages and Finance Ireland, owned by Dilosk.
These guys introduced lower mortgage rates than the banks and innovations like 30-year fixed rates. But it was the entry of Avant Money, owned by Spans Bankinter, that really stood out, offering mortgages of less than 2 percent.
The others had to react and we came to the fortunate position that the new mortgage rates here have come down, although they are still higher than in the euro zone.
But just as the European Central Bank begins an aggressive rate hike, we will lose, at least temporarily, one of the players giving manners to AIB and BoI.
ICS Mortgages’ decision to severely restrict its lending, even to the point of temporarily shutting down its business, is a market disaster.
It will give the big boys free reign in a market where they have been constrained by healthy competition.
And it is an indictment of the Competition and Consumer Protection Commission’s (CCPC) soft-touch approach in authorizing the Bank of Ireland, AIB and Permanent TSB’s purchase of Ulster and KBC’s mortgage businesses. Strict conditions should have been imposed in return for approving these acquisitions.
And all of this could have been predicted when the central bank issued a research paper in May, suggesting that the non-bank lenders’ funding model is highly vulnerable to market interest rates. Not so the banks, which are flooded with cheap funds from their bulging deposit books.
With the ECB set to hike rates again and with less competition now, it means the mortgage market is in for a bumpy ride.
https://www.independent.ie/opinion/comment/watchdog-has-let-big-lenders-off-the-hook-and-we-will-pay-dearly-for-that-41906525.html Watchdog let big lenders off the hook and we will pay dearly for it