Banks' refusal to cut variable rate mortgages backed by EU
Published 08/07/2015 | 02:30
The European Commission has backed the hard line being taken by Irish banks in their refusal to slash variable mortgage rates for tens of thousands of families.
As EU chiefs continue wrangling with a desperate Greek government, the commission said that our bailed-out banks should be allowed to profiteer on the back of mortgage holders.
A draft report by the European Commission, seen by the Irish Independent, warned that the "continued pressure" being placed on banks to cut mortgage interest rates may undermine the stability of Ireland's financial sector.
Despite acknowledging that variable rates in this country are "relatively high", EU officials suggested that slashing rates could discourage new banks from entering the market.
It warned against intervention that "may undermine financial sector stability by reducing bank profitability and impact future privatisation prospects".
The assessment by the powerful EU body will make it more difficult for the Government to convince banks to pass on rate cuts to their customers.
No bank has cut variable rates since Finance Minister Michael Noonan hauled six of them into his office in May demanding reductions.
They have offered existing customers lower fixed rates and lower interest costs for those who owe less in the mortgage than the home is worth.The moves mean the average variable rate is set to fall to around 4pc.
But borrowers in this country are still paying around twice the eurozone average.
For a borrower with a €200,000 mortgage, the additional interest is over €300 a month. Around 300,000 mortgage holders are on variable rates.
Reacting to the EC report, Mr Noonan urged customers to switch provider in order to get a better deal.
"People need now to look at the competitive rates. I think there is a great case to be made for switching from one mortgage provider to another," Mr Noonan said.
However, many homeowners are not able to avail of the new rates announced last week as they are in negative equity - they owe more than their home is worth.
The European Commission argues that continuing to put pressure on banks to cut rates "could also have negative implications for market competition by discouraging potential new entrants to the market".
Irish banks must be given "sufficient leeway" in setting mortgage interest rates, the top EU body concluded.
Fianna Fáil is tabling a bill this week that would oblige the Central Bank to assess the mortgage market and study banks' costs against their profit margins.
The Commission's latest assessment of the performance of the Irish economy has been sent to members of the Oireachtas Finance Committee.
Officials said the resistance towards paying for water charges "remains high".
And the Commission noted that Irish Water has refused to release the details of payment compliance.
On health, it said "uncertainty" continues to surround the proposed introduction of Universal Health Insurance.
It added that overall the economy was "rebounding strongly yet the legacies of the crisis still call for determined policy efforts in public finances and financial sector repair".
The Commission acknowledged that the State's public finances have continued to improve and said that investment and construction had accelerated.