Calls for banks to put cap on mortgage rates
home loans
BANKS should be encouraged to introduce mortgages where there is a limit on the interest rate they can charge.
Mortgage expert Frank Conway said such a rate cap was common in the US and would give some certainty to new borrowers.
The comments follow reports in this newspaper that the Central Bank was considering encouraging banks to bring in more long-term fixed-rate mortgages. Regulators are looking at options to discourage people from taking out variable-rate mortgages.
Around 87pc of mortgages are either tracker or variable rate, leaving homeowners vulnerable to interest rate hikes.
Now Mr Conway, of MoneyCoach.ie, said that banks should also be encouraged to introduce mortgages with rate caps.
With a rate cap, mortgage lenders would only be allowed to increase the interest rate by a set percentage each year.
There would also be restrictions on rises in the interest rate over the lifetime of the loan.
This would mean that if a mortgage had an original interest rate of 4pc then the annual increases could be no more than 1pc.
The lifetime increases would be no more than 3pc.
Restrict
The Central Bank is considering new proposals that could discourage banks from offering variable mortgages and restrict institutions from taking on too much "high-risk property lending".
The potential new rules, described as being at an "early stage of development", are contained in a wide-ranging document published on Wednesday on Ireland's implementation of its bailout programme.
In the document, the European Commission notes that the Central Bank was looking at "potentially fixing all interest rates for certain products such as mortgages" as well as imposing restrictions on the amount of high-risk property lending individual banks could do.
However, the Central Bank stressed yesterday that it was not planning to ban variable-rate mortgages. Some 255,000 households have variable rates.
It is understood proposals may centre around promoting longer-term fixed-rate loans, like the 10- and 15-year fixed rates common in Europe, rather than forcing everyone on to fixed rates.
Just 130,000 homeowners have fixed rates at the moment.
Michael Dowling, of the Independent Mortgage Advisers Federation, said any move to get more people to take up more fixed rates would have to mean fixed rates getting cheaper.
He said the profit margin banks take on fixed rates were high and it was expensive to break out of a fixed rate.
"Fixed rates are good for banks but I am not so sure they are good for consumers," Mr Dowling added.
- Charlie Weston Personal Finance Editor
Irish Independent
