Banks 'push homeowners into arrears'
BANKS are pushing struggling homeowners into arrears by hiking variable mortgage rates.
Bankers denied to TDs and senators earlier this month that they were using higher variable rates to compensate for the fact that thousands of people are not paying their mortgages. But a Central Bank study found banks are making up for losses – caused by high levels of arrears – by hiking variable rates.
There is evidence that "higher interest rates can increase arrears", according to the study entitled 'Variable mortgage rate pricing in Ireland'.
The logic of hiking variables that push some borrowers into arrears is that most of those with variables are older, and have paid off most of their mortgage, the study makes clear.
Lenders are also charging higher variable rates to make up for losses from trackers.
"Banks with higher arrears rates exhibit higher variable mortgage rates," the paper by Jean Goggin and four other economists found. "Changes in the rate of mortgage arrears also drive changes in variable rates."
Some 300,000 homeowners have variable rates, with interest rates that are 2pc higher than those on trackers.
This means that someone with a €300,000 standard variable rate is paying €300 a month more than someone with the same tracker rate.
The new findings came as regulators have ramped up pressure on banks to deal with the mortgage arrears crisis. Six of the main mortgage lenders have been told to conclude deals with at least one-in-six of those in arrears by the end of the year.
Up to now, banks have been told to help homeowners, but now the Central Bank has moved to the next phase and set targets for concluded deals.
The new targets have been put in place after talks between regulators and the bailout troika of the EU, IMF and European Central Bank.
By March next year, lenders will have to have in place "concluded solutions" with a quarter of those who are behind.
Close to 100,000 homeowners are now at least three months behind on payments.
"The Central Bank, in agreement with the troika, has now set its expectations of the banks in this regard and requires banks to have concluded arrangements with 15pc of their over 90-day mortgage arrears customers by end of December 2013," the regulatory body said yesterday.
Banks have already been set targets to make offers of long-term solutions.
By the end of this year, half of those in arrears must get an offer of a sustainable solution.
And 70pc in arrears must now get an offer by next March.
Banks recently revealed that they are counting letters threatening repossession as offers of "sustainable solutions" as part of the Central Bank targets.
They said they have clearance from the regulators to do this.
AIB, Bank of Ireland, Ulster Bank and Permanent TSB have sent 15,000 legal letters threatening repossession.
By Charlie Weston Personal Finance Editor