Bankers on collision course with regulator over rate hikes
Published 19/10/2011 | 05:00
BANKERS set themselves on a collision course with regulators yesterday after they questioned moves to stop them hiking variable mortgage rates.
Irish Banking Federation head Pat Farrell said he "wasn't comfortable" with lenders being told that rises in variable rates had to come to an end.
A succession of variable rate rises this year and last year mean that families on variable rates are paying €120 more a month than those with other types of mortgages.
This newspaper revealed last week that deputy Central Bank governor Matthew Elderfield told the bosses of five Irish banks that there are to be no more variable rate rises.
And he is writing to another 12 lenders saying that constant rises are forcing more people into arrears.
Higher arrears will mean banks will need more capital from the State, a cost that will ultimately be borne by taxpayers.
And the new get-tough approach from regulators means banks will be under pressure to cut variable rates when the European Central Bank lowers eurozone rates, a move that could happen before Christmas.
But Mr Farrell said banks should be allowed to set their own interest rates.
He denied that variable rate customers had been singled out with a string of hikes in the past two years.
Mr Farrell also questioned claims by the Central Bank that the repeated hiking of variable rates was pushing people into arrears. He insisted that mortgage rates were low compared with elsewhere in the EU.
"It is in the banks' own self-interest to ensure that what they're doing in interest rates doesn't exasperate the situation for mortgage customers who are already in distress.
"So I think we hear all those things, and take them on board, but I think ultimately banks should retain the ability to set interest rates," he said.
Around 200,000 homeowners have been hit with up to three variable rate hikes this year, with the same number last year. This is at a time when eurozone rates only went up twice.
The string of rises are costing families an average of €120 a month in additional repayments.
Mr Elderfield has warned lenders he will seek a change in the law if banks do not co-operate.
He has also threatened to send teams of inspectors into banks that defy his orders.