Saturday 10 December 2016

Central Bank's mortgage plans will only make matters worse

Published 22/11/2015 | 02:30

If the Central Bank really wanted to help variable rate customers, it should ban lenders charging existing customers more than new ones
If the Central Bank really wanted to help variable rate customers, it should ban lenders charging existing customers more than new ones

You have to wonder if the senior people in the Central Bank listen to very much that is said to them by those outside their Dame Street headquarters in Dublin.

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That thought is prompted by the latest proposals to emanate from these regulators, one of whose main tasks is to protect consumers.

A consultation paper has been issued by the Central Bank, proposing rule changes for banks when they are increasing variable mortgage rates.

However, many of the proposed changes are likely to make the situation worse, not better, for the 300,000-plus homeowners subject to some of the highest variable mortgage rates in the eurozone.

Under the proposals, mortgage lenders may have to give more than 30 days' notice if they plan to hike variable rates.

Regulators are also proposing that lenders set out the reasons why they are increasing the variable rate in letters to homeowners.

It is proposed that banks tell mortgage holders about better-value options they offer, such as lower fixed rates. And banks would be required to provide reference to switching options outlined by the Competition and Consumer Protection Commission.

The Central Bank has not indicated how many days' notice lenders would have to give for pushing up interest rates. Instead, it has sought views on its proposals under a consultation process.

Do write to them and tell them to stop wasting our time and money on farcical proposals. Ask them if they really understand, or care, about 300,000 people being ripped off on variable rates.

Forcing bankers to give you extra notice when they plan to hike your variable rate will simply mean they load in an extra rise to cover themselves from any future increase in the cost of funds that they cannot react to quickly by raising rates.

Requiring reasons for a rise to be provided by lenders will result in self-serving puffery. And it will add an extra compliance cost that will ultimately be passed on to customers.

Tiny numbers of mortgage holders currently switch lenders to avail of better rates, despite the outrageous gouging going on.

If the Central Bank really wanted to help variable rate customers, it should ban lenders charging existing customers more than new ones. This odious practice is one of the main reasons people won't risk switching.

And the regulators should cap variable rates at 3pc. There is little prospect of new lenders coming in anyway, so capping rates should not be dismissed as anti-competitive.

Capping rates would be useful and effective, which means it has no chance of being implemented.

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