No relief for 300,000 mortgage holders from Kenny
TAOISEACH Enda Kenny has no plans to force banks to reduce sky-high variable mortgage rates, beyond asking them to show their customers “a degree of understanding”.
Mr Kenny appeared to be laying the groundwork for a U-turn on the Government stance that it cannot intervene in the day-to-day workings of the banks yesterday, by saying he would put pressure on them to cut variable rate holders some slack and pass on lower European Central Bank rates.
“I expect the banks to do better than they have been doing in respect of variable mortgage interest rates,” he said.
However, his spokesperson said there was “nothing further to add” when questioned last night as to what Mr Kenny would do if banks didn’t reduce home-loan payments.
More than 300,000 families on variable rates are paying interest rates that are four times higher than those on tracker rates.
Showing up Mr Kenny’s weak position, Finance Minister Michael Noonan insisted he has no actual legal powers to allow him to act.
However, Mr Noonan is expected to meet with the Central Bank governor today to discuss the issue.
“I will again speak to the governor of the Central Bank and ask the bank to see what influence they can bring to bear, to bring the variable mortgage rates closer to the cost of funds,” said Mr Noonan.
Variable rates here are more than double those charged elsewhere in the eurozone.
The gap in what is being charged means that a family with 20 years left to pay on a €200,000 mortgage, on a variable rate, is paying €4,000 more a year than a family with a tracker owing the same amount.
And the rates being charged to new mortgage customers are €600-a-year less than to existing variable rate mortgage payers.
Mr Kenny said the Government did not set interest rates. But he said that the banks are back to making profits, and are paying hugely reduced interest rates on the money they have to borrow, which should be passed on.
However, pressed on what exactly Mr Kenny plans to do if the banks do not respond to his calls to cut interest rates, his spokesman was unable to provide an answer.
The Finance Minister said he would try and see if pressure can be put on banks to cut variable rates.
Fianna Fáil’s Michael McGrath claims variable rate mortgage holders are being exploited, and accused banks of “gouging” mortgage holders.
He called on the Government to demand rate reductions, as was done soon after the Coalition came to power in 2011. AIB responded back then with a rate decrease.
Mr Noonan insisted he has no legal powers to allow him to act, but he will discuss the matter with the Governor of the Central Bank. He admitted that mortgage rates for new customers are lower than for existing homeowners.
“I hope existing mortgages also gain from the general downward movement in interest rates across Europe.”
A spokesman for the minister said the regulation of interest rates was a policy area under active review and that this has been the subject of correspondence between the Department of Finance and the Central Bank.
Mr Noonan meets regularly with the governor and will raise the issue further at his next meeting, the spokesman said.
All the main banks yesterday said they were reviewing their rates, but none gave a commitment to pass on low ECB interest rates to variable rate customers.
The ECB rate is at a record low of close to zero, at 0.05pc.
Michael Dowling, of the Independent Mortgage Advisors Federation, said banks were “abusing” customers by charging many of them such high variable rates.
“There is no doubt that it is an abuse of the position of customers to charge high variable rates.
“Most of these customers can’t move to another lender because they are in negative equity,” he said.
But he said banks will only respond with lower rates if they are forced into it by the Government.
However, he said the Government was conflicted.
On the one hand, it wanted to stop 300,000 variable mortgage holders being overcharged, but on the other hand, reducing rates would not help the sale of shares in both AIB and Permanent TSB to investors later this year.
The Government hopes to raise billions of euro from part-privatising the two banks.
The Central Bank said yesterday it has no power to set mortgage rates for banks and won’t seek such power as it would curtail competition in the market.
A spokeswoman said it does not have the legislative power to tell banks what interest rates to charge. “Any intervention may discourage new market entrants,” she said.