Housing crisis: cheap loans plan ‘sunk by politics’

THE biggest mortgage lender in Germany says there is political resistance to it entering the home loan lending market in Ireland because the Government wants to protect AIB and Bank of Ireland, the Sunday Independent can reveal.

Public savings bank Sparkasse, which writes 50pc of all German mortgages, says its lending model would help end the housing crisis in Ireland.

The bank, which is also noted for its support of local small and medium enterprises in Germany, operates in a similar fashion to credit unions and is, in effect, a public banking system. Sparkasse offers a significantly lower interest rate on mortgages in Germany compared with current rates here. A mortgage rate reduction of 1pc here would mean a saving of about €120 per month based on a €300,000 mortgage with a loan term of 30 years.

Now Sparkasse has linked political resistance to its entry to the mortgage market here to sensitivities surrounding the flotation of the Government’s stake in AIB and, possibly, Bank of Ireland.

The revelation comes as the housing crisis remains the key national issue amid huge concerns last week about rapidly increasing rents, homelessness and the inability of young people to get a mortgage.

In an interview with the Sunday Independent, Sparkasse’s project manager in Ireland, Harald Felzen, insisted the bank “could be part of solving the housing crisis in Ireland”.

However, Mr Felzen said the Government was concerned about the impact a third force in the banking sector would have on the existing banks.

He added: “I hear that politicians may be discussing in the background that the Sparkassen model may be threatening for the privatisation of AIB or BoI.”

He said the Government was “afraid of anything that will disturb the process with AIB”.

He revealed that he had met with Housing Minister Eoghan Murphy but said that he was transferred to the Department of Rural Affairs: “We saw this as clear evidence that they did not have interest in the Sparkassen model for Ireland,” he said.

With the housing crisis set to continue to dominate the political agenda, Fianna Fail’s housing spokesman Barry Cowen yesterday said Taoiseach Leo Varadkar should focus on the housing crisis rather than “obsess with spin and photo opportunities” which did nothing more than “massage his ego”.

“He would be better served focusing on the housing crisis than visiting Justin Trudeau in Canada and getting into Twitter rows with George Hook,” he added.

Mr Felzen also asked why the demand for home and business loans was decreasing in Ireland: “Could it be that people are frustrated and don’t even start the [loan] process any more?”

German Sparkassen are widely praised for their stability and service to German savers and small businesses. They survived the 2008 banking crisis largely unscathed.

The programme for Government includes a commitment to investigate the German Sparkasse model for the development of local public banks that operate within well-defined regions.

Former Tanaiste and Government Minister, Joan Burton also recently said that, in her experience, the greatest impediment to Sparkassen entering the Irish market was the Department of Finance.

Rural Affairs Minister Michael Ring has disputed this and has said that his department, and other departments, including the Department of Finance, are examining the feasibility of Sparkassen and potentially other models of community banking. However, a source close to the Gov- ernment last night confirmed there was concern in the Department of Finance over the impact the introduction of a third bank would have on the State’s investment in Bank of Ireland and AIB.

But last night Mr Ring weighed in behind the introduction of a community based banking system which would compete against the main banks.

He told the Sunday Independent: “It’s high time that we looked at increasing competition in our banking sector, especially given that our two pillar banks aren’t making it any easier for rural users to do their banking in their local branches. Any initiative that serves the clear need for banking alternatives in rural areas is to be welcomed,” he said.

Fianna Fail’s Finance spokesman, Michael McGrath also said competition in the Irish banking sector was “badly needed”. However, Mr McGrath said he did not “sense there is any appetite” from the State to allow a new bank to enter the market.

“Perhaps this can be explained by a desire to maximise the value of the shares we hold in the Irish banking sector but this is a short-sighted approach which comes at a real cost to consumers,” he said.

Department of Finance officials have spoken to Sparkasse representatives about the bank’s proposed move into the Irish market but they turned down an opportunity to travel to Germany and examined the lender’s community banking model.

Mr Felzen said he had invited investigation teams from both the departments of Finance and Rural Affairs to Germany to see how the model works and that he also intends to invite members of the Oireachtas Finance Committee.

The German bank is attempting to win political support in Ireland for a €200m roll out of its community banking model across rural areas. The bank believes its model and the low mortgage rates could help young Irish families.