Inside the world of business
Pity the SVR mortgage holders – especially at AIB
Who’d want to be a standard variable rate (SVR) mortgage holder? They are the only customers on the banks’ mortgage books on which lenders can turn the dial up to raise interest rates to increase the profitability of these loans.
Tracker-rate mortgage holders are sitting pretty watching the moves of the European Central Bank, which holds its monthly interest rate meeting today but is not expected to change rates.
Fixed-rate mortgage holders have protected themselves by locking in for a period of time.
So pity the SVR holders – particularly at AIB after the State-owned bank, which has the largest amount of mortgages in the country. The bank said that it will raise rates by 0.5 per cent next month, the second increase in two months.
Fianna Fáil’s finance spokesman Michael McGrath TD released interesting figures yesterday that showed that customers on a tracker-rate mortgage of the ECB rate plus a margin of 1 per cent will pay €224 less a month than a variable rate customer, €2,685 less a year and €53,700 less over the lifetime of a mortgage that has 20 years to run.
It shows the pain being inflicted on SVR customers and just how smart a move it was to track the ECB.
AIB is moving up its SVR pricing in line with the market. The new 4 per cent SVR rate is still below the market average of 4.4 per cent but that will do little to ease the pain of those already struggling to meet their debts on the previous rate of 3.5 per cent.
If you look across the banks, Permanent TSB (another State-owned bank) has moved SVRs the most, cutting rates to 4.34 per cent from 5.69 per cent last December, though it was admittedly a distant outlier; it was the only bank charging more than 5 per cent.
AIB is the second biggest mover, raising rates by 1 per cent from 3 per cent at the start of this year. Again, it was an outlier but at the other end of the rate scale.
So life has become easier for Permanent TSB customers over the past year and harder for SVR customers at AIB, but if you’re at AIB you’re still paying less than your counterparts at Permanent TSB. The others are charging between 4.25 and 4.5 per cent.
Purchase of bankruptcy site raises questions about Insolvency Bill
The news that Dublin solicitor firm Anthony Joyce – the self-professed champion of distressed property owners nationwide – has bought IrishBankruptcyUK.ie, a Leicester-based firm that specialises in assisting Irish property owners to secure UK bankruptcy, raises the question of what exactly is happening with the Irish Personal Insolvency Bill.
The latest from the Department of Justice is that the Bill, which was announced with such fanfare in June, is still making its way through the legislative process. Having finished committee stage, the final stage is expected to be completed in the Dáil this month, while Deloitte executive Lorcan O’Connor has been appointed as director-designate of the soon-to-be-created Insolvency Service.
However, the service will not be operational until next January at the earliest, according to Government documents submitted to the IMF and EU authorities.
In the meantime, Anthony Joyce Co are making hay while the sun shines as it were. Following the acquisition of the UK firm, a new company, Debt Options, is being set up in Dublin, marketed at Irish people who want to petition for bankruptcy in the UK. The service promises to get people through the bankruptcy process in the UK in jig time – sometimes without going before a judge – and will help with everything from securing local gym membership to helping prove the all-important “comi” or centre of main interest.
Whatever the ethics of the procedure, there will be no doubt a demand for the service. The scale of Ireland’s distressed mortgage problem is colossal – more than one in five home loans were in some form of financial difficulty at the end of June, according to the Central Bank. Ireland’s mortgage problems are of major concern to the troika, despite Ireland’s discipline in meeting the troika’s budget deficit targets.
According to market sources, it is also the predominant concern for international investors and fund managers weighing up the risk profile of Irish sovereign debt.
How the Government and the banks deal with the issue of Ireland’s troubled mortgage book in the coming years may well be the key factor in Ireland’s return to the markets and full economic sovereignty.
Upbeat news on services sector
Another day, another upbeat set of data on the Irish economy. Yesterday’s purchasing managers’ index gave further substance to the view that the Irish services sector is faring better than equivalent business in other countries. The data showed activity in the sector hit a 19-month high, with the good news spread right across all sub-sectors, including employment. It was the first time in six months that the survey reported growth in employment in services businesses.
The report comes just days after a similar survey of Ireland’s manufacturing sector pointed to a measure of recovery, with the headline index rising for the seventh month in succession. And late last week, retail sales recorded a second consecutive month of growth. But all that should not distract Government from the underlying uncertainty that threatens to undermine the course of the Irish recovery.
Domestic demand is still weak, as illustrated in last week’s national accounts, and consumer sentiment figures published this week by the ESRI and KBC Bank point to deepening insecurity. The scale of the decline in sentiment – erasing most of the modest monthly gains through 2012 – was stark, as is the message for Government.
Exhorting people to accent the positive at the same time as sowing insecurity over budgetary measures and families’ personal finances is self-defeating. Exports, which have held up well, can get the economy so far, but to meet the troika growth targets, on which recovery is predicated, the consumer must be persuaded to open their wallet.
Failure to do so could see growth undershoot levels required to return to international debt markets. In that scenario, the current austerity programme could seem pale by comparison with what would be in store. Those flying budgetary kites would do well to consider the bigger picture.
Quote of the day
We arent just saying no to them, we are giving them counterproposals
– Cyprus’s president Demetris Christofias rejecting a bailout from international lenders on the current terms being offered
Today
ECB holds its monthly interest rate meeting today, coinciding with a similar meeting by the Bank of England
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