Land Loan interest Rates 2016Interest rates for ground loans 2016
It aims to regulate floating rates floating rates residential property leases by authorising the central bank to act in the case of "market failure" (i.e. when prevailing circumstances in the property markets are such that the floating rates for the main home loan ("PDH loan") are higher than the central bank deems "appropriate and objective " when based on a number of elements established by the law).
In essence, the law allows the central bank to limit the default floating interest rates levied by private sector lending institutions. Draft law is applicable to "main housing construction mortgaged loans" (defined as credits for the prime objective of buying a main housing for the borrowing party (and, if applicable, the borrowing party's own family).
These definitions exclude Buy to Let and other types of hypothecary product. Loan provider' is also widely understood to mean'any regulatory body within the meaning of the Central Bank Act 1942 or any enterprise, corporation, firm, undertaking or other unit involved in the supply, servicing or administering of main residential mortgages'.
According to Section 2 of the Act, the central bank must assess the competitive situation on the PDH loan markets at least every three months. The draft law sets out in Section 3 eleven elements which the central bank must take into account when conducting its evaluation under Section 2.
Among these are: the floating rates invoiced by lenders; the ability of lenders to easily change their PDH loan between lenders or between different product offerings by the same lender; the ratio and appropriateness between the floating rates invoiced by each lender and that lender's financing costs; the lenders' financing costs and the evolution of lenders' financing costs over a period of years; the lenders' appropriate return rates under given commercial circumstances; other issues that the Governor of the Central Bank may confirm as relevant.
At the end of its examination, the central bank must draw a decision as to whether the competitive situation in the PDH loan markets is such as to constitute a failing State. Where the central bank considers that a particular lender or a particular lender (or a lender in general) is experiencing economic malfunction, it may give an instruction (an "instruction") not to apply a floating interest or floating interest for PDH lending in general or for certain PDH lending (or classes of PDH lending) exceeding it:
an interest coupon fixed by the central bank; a spread (or margins) fixed by the central bank over the lenders' financing costs; a coupon fixed by the central bank, not exceeding one third, over the mean floating coupon calculated on the markets for similar PDH borrowings as fixed by the central bank.
An executive order may continue in effect for an indefinite period and the central bank may request the Supreme Court to issue an order (an "enforcement order") which requires that an executive order given be complied with. Chapter 7 of the Act also forbids discriminating between current and new borrower when fixing floating rates and authorises the central bank to request the Supreme Court to issue an order (a'correction order') obliging a lender to stop any practices of nondiscrimination forbidden under Chapter 7.
A central bank may also submit applications to the Supreme Court for remedies for a borrower if it has been subject to discrimination and imposes a financial penalty on the lender concerned. Whilst the law's implementation is certainly well-intentioned, the fact persists that it is not the central bank's roll or role to interfere in the housing property markets to tackle perceptions of "market failure" on the grounds of issues such as the lenders' appropriate earnings prospects under given economic circumstances or the ratio and appropriateness between floating interest rates invoiced by a lender and the lender's financing costs.
There is a potential downside to the broader effects on the financial community when the Act comes into force (and when the power vested in the central banks is exercised). Adopting such laws could have a detrimental effect on banks' viability and prevent new creditors from entering the housing property markets. Encouraging new players is the most efficient way to counteract a supposed absence of competitive conditions in the private mortgages markets.
And the governor of the central bank has made this public: "It is not our belief that the introduction of mortgages ceilings is the best way to promote competitive mortgages". When adopted, the law will exert unjustified pressures on the Governor of the Central Bank and could possibly lead to a tension with the ECB, which will no doubt regard the law as a menace to the Central Bank's autonomy in its capacity as protector of the stabilisation of the financial system.