03 Jan 2019
Irish Banks: Central Bank rules to encourage more switching
New consumer protection rules brought into force by the Central Bank of Ireland this week
New consumer protection rules brought into force by the Central Bank of Ireland this week, which are designed to encourage additional transparency and pro-active consumer interaction by lenders, are likely to support a further increase in the rising trend of mortgage switching in Ireland, in our view.
The new and enhanced consumer protection requirements being made to the Consumer Protection Code 2012 will mean that lenders are required to inform borrowers at least 60 days in advance of the end of a fixed rate mortgage period as to what new rates are applicable to borrowers, and what other options (i.e. switching to an alternative lender) may be available to them. Lenders will also be required to notify borrowers every year as to whether they may be able to avail of a cheaper rate in the event of the home valuation having improved the LTV on the mortgage. Lenders will also be required to outline the full costs and benefits of varying mortgage product options to borrowers, in particular around the nature of certain incentives being offered to switching customers (i.e. cash back offers).
Lenders will also be required to notify borrowers every year as to whether they may be able to avail of a cheaper rate in the event of the home valuation having improved the LTV on the mortgage.
We see the new Central Bank rules as likely to support the already rising trend of switching between competing institutions. The level of switching in the market reached 13% of all new drawdown activity in 9M18, up from 9.7% seen in 2017 and the lows of c.2% seen in both 2012 and 2013. We expect switching to ultimately make up close to 20% of all market activity once the final elements of negative equity are reversed and as the level of tracker mortgages outstanding falls back to less significant levels as a proportion of total mortgage credit outstanding.
UK manufacturing PMI (December)
IHS Markit reported that the UK manufacturing PMI had risen to a six-month high of 54.2 in December, from the 53.6 recorded in November (revised +0.5pt). This beat consensus expectations for a fall to 52.5 and our own for a modest rise to 53.3. Once again Brexit-related stockpiling was the main proponent of the increase in the PMI, with respondents attributing it to increases in both new orders and stocks. Indeed, input inventories rose at the fourth-fastest rate since the survey began in 1992, while the increase in stocks of finished goods was the second-strongest on record. A more disappointing feature of the report was that manufacturing output grew to a more modest extent than it did in November.
Safe haven flow boosts JPY
Overnight there has been sharp moves in a number of asset classes. The spark appears to have been a rare revenue warning from Apple in which the company cautioned that revenue could come in as much as 10% lower than its previous guidance, with most of the blame pinned on an “economic deceleration” in China. This has not served to assuage investor concerns about a slowdown in global growth, prompting further safe haven flows. However, these have been exacerbated amid thin trading in Asian markets, with Tokyo remaining closed today for the final day of a four-day holiday. This has seen a number of ‘flash’ crashes in various currency pairs but the recent ‘safe haven’ flow into the Japanese yen took another sharp leg higher overnight. The most prominent has been an 8% jump in the yen against the Australian dollar to a near-decade low of below 72. Apple’s revenue warning has also hit Taiwanese chip suppliers, with the TAIEX down 0.7% today, while S&P 500 e-mini futures point to the index opening 1.4% lower.
All eyes on UK Services PMI
After yesterday’s Brexit ‘stockpiling’ boost to the UK’s manufacturing PMI data, it’s the turn of the lesser spotted Construction PMI data later this morning. Market forecast is set for a slight dip to 52.9 from last month’s 53.4. It will be the all-important Services PMI print, due tomorrow that the market will be keenly watching. November's index fell to a 28-month low of 50.4, from 52.2 in October, a whisker away from the so-called breakeven level of 50. A number of firms cited Brexit uncertainty and we note that over the past three months the index has underperformed its euro area equivalent, dropping by close to four points against a one point decline in the Eurozone index. It is not certain that the degree of Brexit uncertainty is any more apparent than a month ago, other than of course, that 29 March is closer. December's flash Euro area index slipped a further 0.7 points in November, but we suspect that the scale of last month's decline means that a further fall this time is less likely. Accordingly we are pencilling in a steady outturn of 50.4.
Today’s economic calendar
09.30 UK Construction PMI
13.15 US ADP Nonfarm Employment Change
15.00 US ISM Manufacturing