CCPC publishes Mortgages Options Paper

June 15, 2017

‘Options for Ireland’s Mortgage Market’ outlines considerations for developing a competitive and stable mortgage market

15 June 2017: The Competition and Consumer Protection Commission (CCPC) has published its mortgages options paper, which outlines a range of options and areas for further study to assist the Government develop a better-functioning, competitive and stable mortgage market.

The paper, which was requested under the “Programme for a Partnership Government”, proposes a number of actions in the short, medium and long term which are designed to address ongoing issues and difficulties in the Irish mortgage market.

Isolde Goggin, Chairperson of the Competition and Consumer Protection Commission, said, “In addition to affecting the lives of millions of consumers in Ireland, the scale of the mortgage market has far reaching implications for our economy and society as a whole. Our analysis shows that this market is currently quite dysfunctional from both a competition and a consumer perspective. The market we have is the legacy of the last 15 years of boom and bust and unfortunately there are no quick fixes to significantly increase levels of competition or consumer choice”.

“Given the significance of the market, the CCPC believes that it is important that there is a long-term strategy and shared vision for it. This will require high level Government and Oireachtas consideration as to what we want from the mortgage market. Such a vision should extend well into the future so as to avoid short-term responses to long-term structural challenges. In our paper we have set out options to enable Ireland to start building a mortgage market which is more competitive, stable and fit for purpose; but these need to be implemented in the context of this vision. Otherwise nothing will change and we will continue to have the same type of market we see now.”

Concluding, Ms Goggin said, “Our analysis tells us that the significance and complexity of this market means that any proposed intervention or structural changes should be very carefully considered and only proceeded with following a detailed assessment of their implications and consequences. The options we have set out will help facilitate that consideration and if further progressed will offer consumers and financial institutions more choice and certainty.”

The CCPC’s paper is the outcome of extensive consultation and research with various stakeholder groups including interviews with consumer representative groups, industry players (in Ireland and internationally) and a public consultation. The CCPC also commissioned consumer research to examine consumers’ perceptions and experiences of the market. All of the information was used to develop an evidence-based analysis of the current market which formed the basis of 14 actions which the CCPC believe should be considered by Government and policy makers.

The main options presented

A national strategy and vision

  • The development of a suitable national forum that would develop a defined long-term strategy for both the housing and mortgage markets. This strategy would set the context for all future policy choices that influence both demand and supply in the market and give the context in which the Central Bank of Ireland (CBI) can make effective regulatory decisions.

Consumer choice

  • Switching is a clear way to unlock greater competition in the market. There is considerable work to be done in improving the ability for, and incidence of, switching. To address this the CCPC proposes that they work with the Legal Services Regulatory Authority to facilitate the introduction of e-conveyancing.
  • The Department of Finance and the CBI with the CCPC should establish a working group to facilitate the development of automated switching processes, including legislative changes where appropriate.
  • Lenders are competing on auxiliary items and mortgage add-ons rather than rates. This can have the ability to mislead consumers in their choices, and result in consumers drawing down on a mortgage product which may not be best suited to their needs or financial circumstances. A joint working group between the CBI and the CCPC would examine the appropriateness of these offers and develop a set of policy recommendations for implementation.

Encouraging new entrants and building international reputation

  • To address the high concentration of a small number of lenders and low levels of new entrants the Department of Finance and the CBI should consider “business-friendly” initiatives. In the UK such measures have included a start-up unit in the Financial Conduct Authority and an Innovation Hub.
  • To encourage new entrants, innovation and build Ireland’s reputation internationally consideration should be given by the Department of Finance and the Department of Jobs, Enterprise & Innovation to undertake an international campaign similar those run in the private sector, when firms are seeking additional equity or pursuing mergers and acquisitions.

Policy and longer term considerations

  • The CCPC questions whether short-term funding of mortgage loans and the use of deposit funding is the optimum funding model for Ireland’s mortgage market. Due to the financial risks attached to short-term lending models, the Department of Finance and the CBI should look at how to promote longer-term funding options. A shift towards longer-term fixed rates could bring several benefits, notably increased transparency and stability for borrowers and more reliable, stable funding sources for lenders.

In the course of researching this paper the CCPC found that there was a lack of predictable and consistent practices when dealing with loans in arrears. The impact of this is that banks are required to have more capital to write a mortgage which means loans are more costly. The CCPC considers that any changes to repossession policy should be carefully considered and asks that the establishment of an interdepartmental working group or Joint Oireachtas Committee should be considered.

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