Failure to pass on cuts makes variable home loans 'worst value'
Karl Deeter carried out survey
BANKS and building societies have been accused of increasing their profit margins on standard variable mortgages.
Lenders have hiked their profit margins on standard variable mortgages by 1 percentage point to 2.3pc over the past two years, a survey conducted for the Irish Independent by Karl Deeter of Irish Mortgage Brokers reveals.
The findings come as the European Central Bank is expected to cut interest rates for the sixth time today. ECB rates are expected to fall to 1pc, with economists predicting that this will be the last rate cut in the eurozone.
Mr Deeter said that two years ago variable rates were 1.3pc above the ECB rate. But they have been creeping up over the past while, and are now 2.3pc above the ECB rate. He said this meant that variable rate mortgages were not good value.
"People can fix now for three years at prices cheaper than most of the variable rate currently on offer in the market," Mr Deeter said.
He said if the rates drop again today, the fixed prices will probably reflect that too.
Mr Deeter surveyed variable rates going back to 2006. These rose in 2008, despite the ECB keeping its base rate unchanged. "What we have seen is that variable rate margins have increased when the ECB rate was not even moving and banks basically leaned on variable rate customers to stem the outflow of money that was occurring, and still is.
Creep
"It is what I would describe as margin creep."
Mr Deeter said the rise in profit margins on variable rates meant they represented some of the worst value on the market because consumers do not have the margin guarantees of a tracker nor the forward budget planning ability of a fixed rate.
The research shows that in 2006 the average margin was 1.38pc, while in 2007 the average margin was 1.35pc.
By last year the average margin was 1.64pc which is a full 0.30 percentage points of an increase in lending margin
The average margin is now 2.3pc.
A spokesman for the Irish Banking Federation insisted that a range of lenders in the market continued to offer borrowers a wide choice of competitively-priced products.
"The competitiveness of the market here is borne out by European Central Bank data which shows that average housing loan costs in Ireland are the second-lowest in the euro area -- 3.80pc compared with the euro area average of 4.89pc," the spokesman said.
- Charlie Weston Personal Finance Editor
