Mr. Boyd pointed out that there is evidence to indicate some positivity in the market, “With stocks of houses down by over 30% and signs of price stabilisation being seen in parts of the country, the bottom of the market is starting to emerge”. He continued, “Lending levels are at an all time low as indicated by the most recent Central bank reports which showed that there is more being paid back in mortgages on existing mortgages was more than what’s been given out in new mortgages”.
Mr Boyd suggested that, “It’s this stability of ECB rates remaining low, coupled with a continuation of the pattern established in the market over recent months, both in buyer confidence and vendors expectations that will allow the market to return to a more normal activity level over 2010”. He feels, “however, recent increases in rates by PTSB, if followed by other banks may well act to endanger this stability and spark a fresh round of price drops”
According to Vice Chairman Patrick Riney, “the banks are acting against their own best interests by increasing rates when their customers are at their most vulnerable. The ECB has recognised this by leaving base rates at their historic low and by acting against this direction; the banks will endanger any recovery and may precipitate a longer term revival”. “The increase of rates will only act to further punish those in difficulty and frighten those that are reticent to spend,” he continued.
The Real Estate Alliance group are aware that the banks claim they are losing money due to the relatively low interest margin now being achieved by Irish bank.
However true this may be, it’s a relatively new phenomenon for Irish banks that historically enjoyed such high level of margins and deposits that foreign banks and institutions were attracted into the system in recent years.
Real Estate Alliance recommends that reducing deposit rates by 0.5% instead of raising interest rates will widen the spread on rates improving the banks net margins.
According to Real Estate Alliance analysis, 12 months deposit rates in Irish banks are now at 3.2%, 220 basis points above ECB rates, 200 basis points above Euribor lending rates and only 49 points below the new PTSB variable lending rate.
In addition, the most recent figures by Consumer Market Monitor show that Irish savings are at an all-time high with people putting away 11pc of their disposable income in 2009, compared with just 3pc in 2007. According to Mr. Riney, “increased consumer confidence and spending will be the stimulus that drives an overall economic recovery according to Real Estate Alliance and instead of increasing lending rates; the banks should be reducing deposit rates”.
“Banks may argue that they need these deposit to improve their balance sheets however we cannot allow the €400bn of state guarantees, €11bn of recapitalisation and €77bn of assets being acquired by NAMA to go unacknowledged,” according to Mr. Riney. He continued,” we all realise that historically low rates like these cannot continue forever, but the timing of rate rises has to be done in conjunction with a more holistic view of the economy. Raising rates in advance of economic ability to repay can only lead to increased levels of arrears, further erosion of any equity that owners may possess and downward pressure on market recovery.”
The members of the Group agree as PTSB has not applied to access NAMA funding, nor has it been recapitalised, it remains largely outside the remit of Finance minister and his offices. And whereas if the Minister for Finance cannot explicitly instruct the banks not to increase their rates, as a substantial shareholder and stakeholder in the sector with directors on the boards of most of the major institutions, it can be made clear to the executives that actions such as this will not be tolerated and may endanger the working relationship of the department and the banks.