Sunday, July 17, 2011

Independent nonsense: banks should be lending to house buyers

So, house prices are way down but the silly banks aren't lending. As usual the Independent leaves out half the story.

The monthly cost of a mortgage (and so the ability to repay it) is determined by the price times the interest rate. Interest rates for Irish borrowers are about twice what they were.

Our interest rates used to be a little above the ECB but now they're massively above it. There's a double reason for this. Irish banks have to pay lots more for their credit now, they can't get it at ECB rates anymore. So they have to charge people what the bank is paying plus a margin for profit.

Secondly, the banks sold a load of tracker mortgages which means that for all those customers, not only are they not getting to add a profit margin, they are actually charging those customers less than what it costs the bank. The result is that they have to add an even bigger profit margin on their non-tracker loans. Yes, if you don't have a tracker not only are you not as well off as those who got a tracker, you are actually being charged extra because of them!

The only mention of "interest" in that whole article is for the buyers who are "interested" in the properties.

So should the banks be lending? I had no idea before I read that article I have no better idea afterwards.

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