Plan to cap mortgage rates hurting banks, says boss of PTSB
The risk of political interference in setting mortgage rates is pushing up banks' borrowing costs, according to the head of State-owned lender Permanent TSB.
The chief executive of Permanent TSB Jeremy Masding told the Oireachtas Finance Committee that the cost of capital for his and other banks had risen as investors weighed up factors including the possibility of "political intervention in asset pricing".
Under a current Fianna Fáil proposal, the Central Bank will be given powers to cap the maximum rates being charged by banks.
Irish standard variable rate charges are the highest in the eurozone, and out of proportion to banks' own borrowing bills.
Permanent TSB said the prices being charged reflected other factors, including that his bank and other Irish banks must set aside far more capital relative to their mortgage books than European banks because of the scale of bad loans on their books.
Borrowing costs were also high because of the difficulties banks faced in repossessing homes, and the risk of a political move on interest rates was also having an effect, he said.
The Permanent TSB boss said the bank had so far paid out €80m to mortgage customers wrongly kept on higher interest rates, and who in some cases lost homes as a result.
Mr Masding told the Oireachtas Finance Committee that more than 90pc of the 1,372 Permanent TSB and Springboard Mortgages borrowers affected had now been compensated. That leaves around 172 cases where the victims have appealed the compensation package offered by the bank.
The cases arose after customers who had moved from low-price tracker mortgages to alternative rates were not told they were entitled to return to the old deal when their fixed terms expired.
In all, 58 families or individuals lost their homes as a result of the action, because they ended up being in effect over-charged.
"We caused enormous detriment to a large number of customers," Mr Masding told TDs and senators.
However, he said the bank had not set out to harm customers and he had found no evidence of individual wrongdoing at the lender.
The bank was operating a redress scheme, including putting customers who still had debts back on the right rate, along with compensation and redress, he said.
However, for those who lost their home, the bank had provided them with a new mortgage, TDs were told.
Mr Masding was strongly criticised by committee members for the tracker scandal.
"If this happened anywhere other than a financial institution, people would be locked up in Mountjoy," Sinn Féin's Pearse Doherty said.
In response to a question from Fine Gael's Kieran O'Donnell, bank officials said the lender added the cost of legal action against mortgage defaulters to their total debt, typically €7,000 to €8,000.
Mr Masding said repossessions were "always a last resort" for the bank, and that since the start of 2015 the bank had repossessed 54 properties, while borrowers had voluntarily surrendered an additional 244 homes.