Thursday 23 February 2017

New lender 'won't help the 200,000 in arrears'

Charlie Weston

Charlie Weston

Governor of the Central Bank Patrick Honohan
Governor of the Central Bank Patrick Honohan

Almost 200,000 people on expensive variable rate mortgages would not be able to switch to a new lender even if one were to enter the market.

These homeowners are trapped with their current lenders because they are in negative equity, in arrears or have no equity built up in their homes, founder of Askaboutmoney.com Brendan Burgess told the Dublin Economic Workshop conference.

And AIB has emerged as the most likely to take people to court if they are not paying their mortgage, a separate paper by financial analyst Karl Deeter has shown.

Mr Burgess questioned a report by Central Bank Governor Patrick Honohan arguing there should be no intervention by regulators to forced-down, high-cost variable rates.

To do this would restrict competition in the market.

But Mr Burgess said the opposite was the case.

He accused the Central Bank of not having a clear view of the mortgage market and the interest rates charged to new and existing customers.

"The Central Bank is out of touch with the reality of the mortgage market."

Variable rates in this country are twice those charged by lenders in the rest of the eurozone.

This was established after work by Mr Burgess that forced the Central Bank to stop including low-priced trackers, which are no longer available, when calculating mortgage rates charged to new borrowers.

Mr Burgess said a report by Prof Honohan in July this year said competition would force down variable rates. It found that up to 100,000 homeowners on variables would save money by switching their mortgage to a new lender.

But this Central Bank report made no mention of the 150,000 to 200,000 borrowers who cannot switch.

"A new entrant won't help captive customers," he told the workshop in Athlone yesterday.

Another paper presented to the workshop by Mr Deeter found that people who were not paying their mortgage faced only a small chance of having their home repossessed.

In just three cases out of almost 2,000 did a person who was engaging with their lender end up having their home repossessed. An analysis of repossession cases in Dublin, Letterkenny and Wicklow found that those who are in arrears for more than a year are more likely to face having their property repossessed.

But the odds are just 160 to one, down from 250 to one in 2012, the research found.

He said the banks most likely to take defaulting homeowners to court are AIB, EBS and Haven. They are followed by Permanent TSB, then Ulster Bank.

Bank of Ireland and vulture funds that bought books of mortgages are the least likely to take people to court over not paying a mortgage. This is despite the reputation of these lenders for being tough.

Irish Independent

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