Noonan says AIB rate cut only first step for lenders
Finance Minister wants series of cuts over time
Finance Minister Michael Noonan makes it clear today that he plans a showdown with the country's biggest lenders later this month over their charging consumers extremely high variable mortgage rates.
In an article in the Sunday Independent, Noonan fleshes out his thinking on how borrowing costs can be reduced for the 300,000 people who has variable rate mortgages.
"A series of reductions over a fixed time frame would be acceptable to me" he says in today's article.
State-owned Allied Irish Banks said on Friday that it will cut rates for new and existing customers. Other banks, which are not controlled by the State, have not been as forthcoming.
Ulster Bank, Permanent TSB and Bank of Ireland all made it clear last week that they have no intention of cutting rates.
Noonan describes the AIB's to cut variable mortgage rates as a "first step".
He adds that he has asked Central Bank governor Patrick Honohan to report back on the matter this week.
Last Tuesday's Spring statement saw Noonan insist he would force banks to cur rates but he was rebuffed within hours by some lenders. Today's article is his first response to that rebuff.
Irish lenders currently have charge some of the highest mortgage rates in the euro zone. The average variable rate mortgage is priced at 4.25pc, according to the Central Bank, while ECB rates are close to zero. Variable rate customers with a €200,000 mortgage are paying out around €6,000 a year more than those on trackers.
Consumer groups and politicians have been fiercely critical of this but little progress has been achieved so far.
Any rate cuts revealed since January have been small; AIB's latest reduction, announced on Friday, took just 0.25pc off standard variable rate customers
Permanent TSB and Bank of Ireland have cut their rates for new customers only.
Most of the bank chiefs who appeared before an Oireachtas committee last week defended the high charges. Outgoing Ulster Bank boss Jim Brown said the lender's standard variable rate was "not overpriced".
Bank of Ireland chief executive Richie Boucher said the bank keeps rates under review but he couldn't give any commitment to cut.
Banks have discretion to set and change the interest rate on standard variable rate mortgages. Homeowners can switch to a new mortgage provider if they wish but only if their home is not in negative equity.
Ireland has the third highest average variable rate in the EU, according to European statistics agency Eurostat. The average rate of 4.26pc compares to a Eurozone average of just 2.47pc.
Noonan said the government will make an announcement on strengthening the mortgage arrears framework in the "coming weeks".
"A particular focus will be on enhancing the role of the Insolvency Service which is overseen by the Department of Justice," he reveals.
The Insolvency Service, which handles debt settlement mechanisms created by the government in the wake of the recession, has had a very low take-up.
Two fifths of the deals the service attempts to broker, are rejected by lenders.
Sunday Indo Business