Elderfield orders banks to stop hiking variable mortgages
Published 14/10/2011 | 05:00
BANKS are to be stopped from targeting 200,000 variable mortgage holders with repeated rate hikes which are costing families an average of €120 a month in additional repayments.
In a dramatic intervention today, Central Bank Deputy Governor Matthew Elderfield is to outline a new clampdown on banks who are piling the pressure on hard-pressed homeowners.
He fears the repeated variable rises are pushing more people into arrears.
It is the first time that the regulator has put pressure on lenders not to raise rates.
The get-tough policy by Mr Elderfield also means he will put pressure on lenders to cut variable rates when the ECB lowers eurozone rates, a move that could happen before Christmas.
Banks have been hiking their variable rates -- some to as high as 6pc -- as they desperately try to make up for losses.
Since the start of the year most lenders have hiked rates numerous times over and above the increases by the ECB.
This means variable rate customers with a €200,000 mortgage are paying €120 a month more than those on trackers and fixed rates because the banks can't touch those.
The Central Bank has no legal powers to force banks to cap rates -- but Mr Elderfield will threaten lengthy and messy probes of the banks' loan books if they move to hike rates -- effectively making it almost impossible for them to do business.
And it comes as new official figures show that rises in mortgage costs helped push annual inflation to 2.6pc last month.
The squeeze on banks -- to be announced in a major speech by Mr Elderfield in Cork today -- is set to frustrate plans by AIB to raise its variable rates.
The lender had been expected to hit its variable rate customers on the double as it is the only lender yet to pass on the two ECB rises this year.
Imposing the two rises would have added €60 a month to the repayments on a €200,000 mortgage. Some 200,000 homeowners have variable mortgages across all lenders.
Lenders have repeatedly pushed up variable rates since 2009, with Permanent TSB now charging some customers 6pc.
There have been two ECB rate rises this year of 0.25pc each, but variable rates have gone up more often and by greater amounts.
A family with a €200,000 variable mortgage with Permanent TSB will have seen its repayments shoot up by €180 a month since the start of this year.
But somebody on a €200,000 tracker will be paying an extra €60 a month.
In other words the variable is being hit for an extra €120.
EBS raised its variable rate for the third time this year at the start of this month to 4.93pc even though the European Central Bank rate is 1.5pc and likely to fall in the short term.
The EBS rate increased by 0.6pc in February and by another 0.25pc from August 1.
Bank of Ireland has also increased its variable rates several times this year.
Some 40,000 people are six months or more behind on their mortgage repayments, according to Central Bank figures.
Bosses of five leading lenders -- AIB, Bank of Ireland, EBS, KBC, Ulster Bank and Permanent TSB -- have already been called into the Central Bank and told by Mr Elderfield of his concerns regarding rising variable rates and mortgage arrears.
Another 12 lenders are to be written to in the next few days outlining the new get-tough regime.
The move will not have any impact on those with trackers, which can only move when the ECB moves rates. And those on fixed rates will be unaffected.
Banks will also be ordered to have strategies in place by the end of next month to deal with people who have no hope of getting on top of their mortgage arrears.
Mr Elderfield is concerned that the reluctance of banks to force repossessions means people with unsustainable mortgages are ending up deeper and deeper in debt.
When they do eventually have to give up possession of their homes the amount they still owe will have ballooned.
But he is also to explain that the lack of a modern personal insolvency framework means people are holding off on doing deals with banks when they can no longer afford a mortgage.
Mr Elderfield believes that if the new bankruptcy laws are too favourable to the heavily-indebted it will lead to thousands of homeowners taking advantage of it and banks will have to get more state funding.
Some €10bn has been provided to Irish banks to cover losses on residential mortgages.