Sunday 25 September 2016

Central Bank has no powers to end two-tier mortgage market, says Lane

Colm Kelpie and Nicola Anderson

Published 27/01/2016 | 02:30

Professor Philip Lane
Professor Philip Lane

The Central Bank has no power to compel banks to end the two-tier market on mortgage variable rates, its newly installed Governor Professor Philip Lane has admitted.

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Prof Lane also told TDs and Senators that interfering in the contracts between a lender and borrower was not in the bank's power.

At the Oireachtas Finance Committee yesterday, Fianna Fáil's finance spokesman Michael McGrath said many of the reductions in rates that have been announced over the past year are restricted to new customers.

Prof Lane said he understood that it appeared unfair.

But he added: "Banks have to be run on a commercial basis. We can discuss the issue about delivering competition in the banks, and we can discuss whether the existing high rates are likely to persist, but the Bank cannot interfere with the contracts between the lender and the borrower."

He said the Central Bank will look at ensuring the process for switching a mortgage to another lender is easier.

"But the issue of insisting that a bank treats new customers and existing customers the same way, that's not really within our power," he added.

Despite the huge difference in costs between here and the eurozone average, the Central Bank said last week that variable rates were down marginally in November.

Six main domestic lenders were twice dragged in before Finance Minister Michael Noonan last year in a bid to persuade them to cut their high variable rates. AIB and its EBS subsidiary responded with cuts.

Mr McGrath said more needs to be done by the Central Bank as the banks' rates are "unjustifiable".

"I think it is fundamentally unfair that the rate reductions are not being extended to the existing customer base across the banking system. You are a new governor and I hope that this is an issue that you will tackle," he said.

Figures from the Central Bank released last week showed first time buyers here are paying €2,000 more a year for their mortgages than the equivalent in the rest of the Eurozone.

That is because the average variable mortgage rate is almost 2pc higher here than the average in the euro currency area. New home buyers are being charged an average borrowing rate of 3.96pc.

The equivalent euro rate is nearly half this, at 2.05pc.

Prof Lane also said the Central Bank has done all it can in relation to mortgage arrears, adding that the number of legal proceedings against mortgage holders have been increasing.

"I think a lot of it is coming to a conclusion. The way the legal system works, there is still going to be some years in this, but I believe the supervisory teams that we have are engaging with the banks, making sure that they are in fact achieving sustainable solutions."

And he added: "From the point of view of the Central Bank, I think what has happened through these strategies is as much as a central bank can do."

On the mortgage deposit rules, he said the issue around rents will factor into the review of the rules due to be published in November.

And he said prices will fall meaning the "bidding war on houses will be less intense".

"So people will be able to buy houses at a lower price than if credit were unregulated," he said.

Meanwhile, the Government has said it will increase social housing output to 17,000 units this year - up from the 13,000 units it provided in 2015, as part of its five-year programme to solve the housing crisis.

In a Social Housing Output report, the Department of the Environment said public housing is now being built at a quicker rate than in the private sector, with 420 staff recruited by local authorities to deliver more social housing units.

The 17,000 units in 2016 will be made up of a mixture of construction, the refurbishment of previously unfit local authority dwellings, from leasing buildings for rental to council tenants and private rental properties, with rental-assistance paid directly to landlords.

Irish Independent

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