Goodbye KBC, Hello Avant Money

In this episode we discuss everything from KBC's planned exit from the market and what this means for customers and competition, to research we conducted with RED C which reveals some interesting insights into how people feel about those in long-term mortgage arrears.

We also discuss Avant Money's expansion into the Irish mortgage market and whether this spells good news for mortgage holders, as well as discussing why electricity prices in Ireland are so high and what consumers can do about it.

Here are the main points discussed by Daragh and Rob in the podcast.

What’s happening in the banking industry?

There’s been plenty happening in the energy, broadband, banking and personal finance markets over the last few weeks. The biggest news story to come out was that KBC will be closing up soon, only weeks after Ulster Bank announces its departure.

To lose one bank seems unfortunate, to lose two seems careless.

With Ulster Bank, people seemed to have been expecting it. The Irish Times had picked up on it six months before it was announced. However with KBC, it was quite sudden. 

These banks leaving will have a huge impact on competition and many will be worried about their current accounts, mortgages and loans.

Why is KBC leaving? 

KBC has said that banking here is challenging. It’s more expensive doing business here than in other countries. 

In Ireland, if you take out a mortgage, it’s supposed to be secured. If you get a loan of €300 - 400 thousand and you stop paying that mortgage, the bank or lender is supposed to have recourse to that asset.

In Ireland, home repossessions don't really happen, even though we might hear big stories in the news.

This makes lending in Ireland more risky and means that Irish banks need to hold more capital. Having all that money tied up means that there’s less money for Irish banks to lend further, make more profit, invest in things like technology.

This is one of the reasons why banks have said interest rates are so high and why they say they can’t reduce interest rates.

Return on capital

For most banks, the mortgage is where they make the most amount of money, but banks also have a return on capital, where shareholders demand a particular return.

This is what we saw with Ulster Bank. It wasn't making a big enough return on its mortgage book. There were billions resting in capital. It had to have that money there against the mortgages it was lending out.

By leaving the Irish market, Ulster Bank can then give this capital to shareholders.

It would be something similar with KBC, although KBC has lost a lot of money here.

KBC is ultimately a Dutch and Belgian unit and likely do things a lot differently over there. They probably think it's too risky in Ireland.

Who will get KBC’s loan book?

The rumour is that Bank of Ireland reached out to KBC, they weren’t officially up for sale.

KBC’s performing loan book, which includes mortgages and personal loans that aren’t in arrears, will likely be sold to BOI over the next few months.

Things like current accounts won’t be sold, and this is where people are going to be stuck.

How much of the market do KBC and Ulster Bank have?

KBC and Ulster Bank both had about 12-15% of the market each. So that’s about 30% of the market now potentially all going back into the remaining players. 

What can people do if they’re a mortgage customer?

There are existing customers and customers who are in the mortgage process.

If you’re an existing customer, you need to know that your terms and conditions are not going to change. If you’re on a 5 year fixed rate with KBC that isn't going to change.

KBC is still open for business and has a good mortgage offering, so it would be the same for someone considering applying with KBC.

It gets a bit complicated at the end of the fixed rate. Usually, you roll over onto that bank’s variable rate.

Ulster Bank and KBC had among the best variable rates in the country. They didn’t really discriminate between new and existing customers.

It’s important to be aware of who buys the loan book because you’ll be stuck with that lender unless you want to switch.

With Ulster bank, it could take a good few years for them to finally go. If KBC does sell its book to BOI, it could happen a lot quicker than we think. It could be this time next year.

For current account customers, is there any point in changing to KBC?

Probably not, and if you are an existing KBC customer, you’ll have to look at where you want to move your business. 

A lot of people switched their current accounts to KBC when Ulster Bank announced it’s leaving, so they’ll have to switch again.

Under the rules at the moment, you do need to be given two months notice. 

Are there any other signs of banks coming into the Irish market?

Not really. There is maybe Sterling Bank but that hasn’t happened yet.

There were rumours that An Post was going to team up with a provider to start launching mortgages, but that seems to have gone by the wayside.

RED C and bonkers.ie research

As mentioned before, lending here is deemed more risky and banks here have to hold more capital.

One of the reasons is because it‘s deemed very difficult to take back ownership of a property or to enforce security when it’s not being paid.

The Banking & Payments Federation Ireland (BPFI) recently did some research which showed that in Ireland, on average when a bank goes to repossess a home as a last resort, they’re only successful 11% of the time.

This compares to an average of 46% in the EU and up to 80-90% in the Netherlands.

We did some research with RED C and we asked people:

• If it was slightly easier to repossess homes and it meant you could get slightly cheaper mortgage rates, would you be happy with that?
• 45% strongly agreed that they wanted to see banks taking a tougher approach.
• Around 22% of people were somewhat in agreement.

The results were somewhat skewed more towards Dublin people and more towards men.

Those aged 55+ were less likely to agree with this. People in their 50s and 60s aren’t affected by high interest rates because they have their mortgages paid off.

Whereas it's the first-time buyers in their 20s and 30s that are struggling to get on the property ladder and are faced with higher rates that higher rates are having an impact upon.

When home repossession cases are in the media, it gets emotive. The media thinks that no one should be kicked out no matter what, but the public is fed up paying high interest rates. 

Why is home repossession so difficult in Ireland?

It’s a social and cultural thing and there are political impediments.

In Ireland, we love the personal story. If someone has something that’s badly affected them, they’ll go onto Joe Duffy, and complain.

It doesn't matter if 10,000 people can benefit from something, if one person is impacted, that’s often what we tend to focus on.

Obviously it's upsetting to see people being asked to leave their homes, but equally it's unfair on the tens of thousands of Irish people who are stuck paying these high mortgage rates.

The average mortgage rate in Ireland is around €185 more a month than other countries in the EU. In the EU, the average is around 1.3%. In Ireland, the average is around 2.7-2.8%.

Avant Money has announced its officially expanding its low-cost mortgages to a range of new locations this month. Who exactly is Avant Money?

Avant Money has been providing personal loans and credit cards in Ireland under the Avant Card brand. It is now owned by the Spanish banking group Bankinter.

Avant Money started offering mortgages here around 8 or 9 months ago and came in with a competitive mortgage rate of 1.95%, which severely undercut the competition.

Having said that, with this rate you do need to have a deposit of 40% or if you’re a switcher, you need to have equity in your house of 40%.

Avant Money does have more widely available rates between 2.2-2.4% for people who don’t have deposits or equity that’s quite as big.

Changes to lending

Avant Money has been quite picky about who it lends to and was only lending to those in urban areas in Dublin, Cork, Galway and Limerick.

While it might seem strange that they won’t lend for a house in more rural areas, you have to remember that when you apply for a mortgage the bank underwrites twice. They underwrite your finances, but then they also underwrite the house as well. Sometimes if a bank doesn’t like the house that you’ve bought or the location, they can say no.

Thankfully Avant Money has expanded the range of locations where it is lending. It is now also in Wexford, Kilkenny, Dundalk, Athlone and Carlow. Avant is saying that 80% of the population lives in these areas.

Targeting mortgage switchers

Recent figures from the BPFI found that Avant had captured about 15% of all mortgage switchers last month, which is really good. It’s good to see them loosen the lending strings a little bit.

If you’re interested in switching mortgages, see exactly how much you could save by switching, check out our handy mortgage calculator and take a look at our ​​guide on how to switch your mortgage.

You can take a look at all mortgage offerings from Avant Money here.

Onto electricity. Recent figures from Eurostat show that electricity prices here are the fourth most expensive in the EU. 

We have the fourth most expensive electricity in the EU, but gas is a lot closer to the EU average.

Prices here for electricity are about 23% above the EU average and if you take into account the average usage of electricity in Irish households, it means we’re paying about an extra €202 each year for our electricity.

Germany, Belgium and Denmark are the only countries that are more expensive than us for electricity but that’s only because they tax electricity more than us. The tax on energy in Ireland is below the EU average.

How expensive is electricity here?

Electricity in Ireland is about €0.26c per kilowatt-hour, according to Eurostat. That includes taxes, levies and charges. This compares to an EU average of around €0.21c.

If you switch, you can get far cheaper prices. All the energy suppliers offer great deals for people who are prepared to switch. These deals only last around one year, in which case we’d recommend you to switch again. If someone switched on our site, you could get electricity for about €0.14c per kilowatt-hour, which is a big jump down.

Why is it so expensive?

Firstly, we are an island location and we still import a lot of fossil fuels to generate electricity. Our island location means there’s an extra plane journey or ship, or a pipe the fuel needs to get to.

Secondly, prices of fossil fuels fluctuate depending on the day or month.

Thirdly, renewable energy isn’t free. It requires money and investment in the grid to turn the wind into energy.

In Ireland, we have a grid that has been set up for supporting fossil fuel energy, it’s not been set up to support renewable energy. Those two types of energy don’t mix well, so a huge investment is needed in the grid to help us meet our climate change target goal of 70% renewable energy by 2030.

We’re now at around 30-35% renewable energy. It’s being suggested that we still need an investment of €2-2.5 billion in the electricity network in order to do that.

This money will have to come from somewhere and unfortunately, we’ll have to pay. When you look at an electricity bill, around 30% is for distribution and transmission charges. These are the charges for the upkeep of the electrical grid. 

For more information, read our blog on why energy prices are increasing.

Switch energy supplier 

For those willing to switch energy suppliers, you can up to 40% off standard rates for the first 12 months with certain deals. This means the average household could save over €400 annually on their energy bills.

At bonkers.ie our easy-to-use comparison tool allows you to compare deals from a range of 13 energy suppliers.

Before switching, you may want to take a look at some of the following:

• Learn about what you need to switch energy suppliers in this guide.
• Here is a list of some of the most frequently asked questions about the energy switching process.
• Have a read of our guide on 7 things to consider when switching energy supplier to know what to look out for when switching.

If you have any questions regarding what was discussed in today’s podcast, we’d be happy to help.

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