Government's effort to force mortgage rates down 'a flop'
Taoiseach Enda Kenny has said it is not morally justifiable for banks to overcharge mortgage holders on variable rates.
His admission came after his Government's attempts to force banks to reduce what they are currently charging 300,000 variable rate customers was described as a flop and complete failure.
Banks were accused of just tinkering with the rates they charge existing customers ahead of a deadline set by Finance Minister Michael Noonan for lower rates.
Permanent TSB said it would offer its 70,000 existing customers the option from September to get a lower rate based on the size of their mortgage relative to the property's value.
For those with little equity built up in their home the reduction will amount to just 0.2pc.
But there has been no announcement to reduce variable rates by Bank of Ireland, KBC, ACC and Ulster Bank. Some of these banks have lowered fixed rates for existing customers.
AIB, and its subsidiaries EBS and Haven, reduced variable rates last month, but it is understood there are no plans for further cuts.
And some banks are still offering lower fixed rates to new customers compared with established mortgage holders.
Brendan Burgess of the Fair Mortgage Rates Campaign said he was deeply disappointed at how little was delivered by the banks ahead of yesterday's deadline.
He accused the banks of just tinkering with the rates they offer.
Fianna Fáil leader Michéal Martin said that of the six banks, only two had given any kind of minimal response.
The efforts to get banks to cut rates was a "flop and a failure", he added.
Mr Martin said state-owned AIB had cut rates by 0.25pc and KBC bank offered "something convoluted". But Bank of Ireland and Ulster Bank had done nothing.
"The banks have told you where to go - and they have told the minister where to go," Mr Martin said.
The Fianna Fáil leader said the Government should now bring in a law to tackle interest rates and his party had already tabled draft legislation in the Dáil.
But the Taoiseach said when Mr Martin was in government it failed in every way to deal with the banks.
"You allowed the banks do what they liked and ruin the economy," Mr Kenny said.
"I do not accept that the initiative taken by Minister Noonan was a failure. I think it is a work in progress," the Taoiseach responded.
Mr Kenny admitted it was "not morally justifiable" for banks to charge so much when the European Central Bank rate was at a record low.
He said the Central Bank had been offered legal powers on interest rates if required and dialogue would continue with the banks.
The banks were introducing new mortgage products, he said.
Fianna Fáil is calling for the Central Bank to be given the power to cap interest rates on mortgages.
Finance spokesman Michael McGrath said: "It is past time for the Central Bank to be given additional powers to intervene in interest rate policy."
He said it was "exceptionally difficult" to switch from one mortgage provider to another.
What have banks done?
- AIB cut its variable rate before Christmas and again in recent weeks, to take its standard variable rate down to 3.9pc, the lowest in the market. Its EBS division reduced its variable rate to 3.95pc in June, and the rate for Haven customers came down to 3.97pc.
- Bank of Ireland charges a variable rate of 4.5pc. It has refused to reduce this. It recently cut its fixed rates, encouraging existing customers to move to these rates.
- KBC Bank has also failed to reduce its variable rate. The bank has given existing customers access to new, lower fixed rates. However, the fixed rates for new customers are lower than the options for established customers.
- Permanent TSB has given its 70,000 variable customers the option of applying for lower rates based on the value of their homes. Its variable rate is 4.5pc, but the new loan-to-value (LTV) rates are as low as 3.7pc for those whose mortgage is less than half the value of the property. Those in negative equity can apply for a 4.3pc LTV rate.
- Ulster Bank reduced its variable to 4.3pc and its LTV rates for existing customers in February, and is understood to be about to announce new reductions.
- ACC, which is one of the six banks that were asked to meet the minister, has not reduced its 4.4pc variable rate.
- Close to 50,000 customers of vulture funds, or banks no longer active in this market, have little hope of a rate cut. These lenders were not hauled in to meet the minister.