A victory in battle on mortgage rip-offs
Crunch time is coming for the Central Bank. Legislation the regulators do not want, designed to tackle the great mortgage rip-off, is on the way.
The new law, which will give the Central Bank the power to cap mortgage interest rates, could be enacted by the summer.
The legislative cap is desperately needed because there is a market failure at the moment. Variable mortgage rates here are almost twice those charged in the rest of the eurozone.
This means a typical borrower in this country is paying €200 a month more than someone in Germany or France for a €300,000 mortgage. Borrowers are also being fleeced on fixed rates.
Regulators and banks should now start to worry as the Central Bank (Variable Rate Mortgages) Bill, promoted by Fianna Fáil's Michael McGrath, has cleared one of its big hurdles.
The bill is not unconstitutional, according to lengthy legal advice received by the Oireachtas Finance Committee that is scrutinising it.
Finance Minister Michael Noonan had questioned the constitutionality of the provisions of the bill. He raised fears the bill would interfere with property rights. That is the main reason the bill has been dragged through pre-legislative scrutiny in the Finance Committee.
Objections to the mortgage rate cap law have also come from the European Central Bank, despite the fact that such caps are common across Europe.
ECB president Mario Draghi claimed the bill would damage the credibility of the Central Bank and the ECB. Mr Draghi claimed new lenders would be less likely to enter this market if their is a mortgage rate cap in place.
Changes to the bill as it currently stands are likely in order to get around some of the objections to it.
Mr McGrath is considering an amendment to the bill that would see an appropriate rate, or a cap, set out in the legislation.
The cap on rates is unlikely to be onerous for banks, but it is likely to set a bar.
Reducing rates will still be resisted by banks, but the new law will mean there will be the potential for future political and public pressure to be applied to banks to lower their variable rates.
Up to now the mortgage market has failed and failed miserably. The banks are cheating their customers when it comes to what they charge on variable rates. Mr Noonan has repeatedly pleaded with them to cut their rates, with only partial success.
Thankfully, it now seems the Central Bank, whether it likes it or not, will soon have the power to order an end to the great home-loan rip-off.