Saturday 24 June 2017

Banks make €800m a year by 'overcharging' on variable rate mortgages

Calls for ban on teaser incentives that mask poor value on offer

Around 350,000 homeowners on variables are paying double the eurozone average. (stock image)
Around 350,000 homeowners on variables are paying double the eurozone average. (stock image)
Charlie Weston

Charlie Weston

Banks are overcharging people by €800m a year on variable rate mortgages, the State's competition watchdog has been told.

There are no good reasons why variable rates here should be double those in the rest of the eurozone, the Competition and Consumer Protection Commission was told.

The commission is carrying out an investigation into low levels of competition in the mortgage market, after being asked to by the Government.

The Fair Mortgage Rates Campaign said in its submission banks were benefiting from an €800m profit on variable rate mortgages.

Fianna Fáil's finance spokesman Michael McGrath said the mortgage market was dysfunctional, and called for banks to be banned from giving "teaser" incentives such as cash back to draw customers into signing up for uncompetitive deals.

The commission had sought submissions on the mortgage market after it issued a paper questioning low levels of competition in property lending.

Michael McGrath said the market was dysfunctional. Photo: Tom Burke
Michael McGrath said the market was dysfunctional. Photo: Tom Burke

It is understood around 14 submissions were delivered ahead of the deadline on Monday.

However, no submissions were made by the Central Bank, the Department of Finance, or the Banking and Payments Federation.

Read more: Tracker issue raised by mortgage holders as far back as 2008 - but no action for years

The commission's review is being carried out on foot of a commitment in the 'Programme for a Partnership Government' agreed between Fine Gael, Independents and Fianna Fáil.

Brendan Burgess, of the Fair Mortgage Rates Campaign, criticised the commission for its failure up to now to investigate the highly concentrated lending market.

"It is extraordinary that the State body charged with consumer protection through advocacy and public awareness has taken no action at all on this issue," Mr Burgess's submission states.

He said the commission "must stand condemned for washing its hands of this issue up to now".

"During that period, Irish borrowers have paid around €1.6bn in excess interest. They continue to pay around €800m a year in excess interest."

Around 350,000 homeowners on variables are paying double the eurozone average.

Defaults

Mr Burgess said banks could afford to slash rates, particularly for those with loans to values of 50pc or less. Arguments about high levels of defaults, difficulties repossessing homes and the prevalence of low-cost trackers had no relevance, he said.

Just three banks have an 80pc share of mortgage lending, the commission stated previously.

Mr McGrath said new and existing borrowers should not be charged different rates.

"Banks should no longer be able to entice customers with cash-back offers or other methods. By ending this practice banks will have to compete on the interest rate they provide," he said in his submission.

Legislation to allow the Central Bank to cap rates is due to be enacted by the summer, even though the Central Bank and the European Central Bank oppose it.

Mr McGrath said in his submission that the Government was doing little to address high variable rates.

Irish Independent

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