Call for cap on savings rates as pain to fall on borrowers
PEOPLE with money on deposit are being subsidised at the moment and mortgage payers will end up bearing the pain -- unless the Government moves to cap saver rates, a leading broker said yesterday.
Philip O'Reilly, a former banker who runs a mortgage brokerage and supplies IT systems to 300 brokers, said the State should cap deposit interest rates at 2pc.
Otherwise, mortgage holders would end up having their rates hiked, said Mr O'Reilly.
What he termed the "deposit rate price war" was mainly being waged by banks that were either State-owned or being bailed out by the State, he said.
He pointed out that some of the highest rates on deposit accounts were currently being paid by Anglo Irish Bank and Irish Nationwide, whose enormous losses on commercial property lending meant the State had to come to their aid.
But these banks were not lending at the moment, making the payment of high deposit interest unsustainable.
Mr O'Reilly, who runs Brokercrm.com, said the deposit war had the potential to add to the economic crisis.
Last week, group chief executive of AIB Colm Doherty said the current banking market was "dysfunctional" as banks and building societies were being forced to pay higher deposit rates than they could generate in loan interest charges.
AIB has already warned that it will hike mortgage rates by the summer for existing customers who are not on trackers or fixed rates. Other lenders are expected to follow its lead.
Mr O'Reilly said Finance Minister Brian Lenihan needed to step in urgently to avert a cost-of-funds crisis.
The alternative was severe rises in mortgage rates for existing customers. This would only succeed in pushing up the numbers in arrears and necessitate a bailout by taxpayers.
"As an emergency measure, deposit rates should be capped at 2pc by the Government for as long as the European Central Bank rate is 1pc. Then, during this economic crisis, the top deposit rate should track the ECB rate," he said.
Meanwhile, a British building society, Nationwide, has said it will pay 3.4pc for money deposited for two years and 3.6pc for money deposited for three years.