Monday 26 September 2016

Variable rate bill is vital - despite Central Bank's discomfort

Published 18/05/2016 | 02:30

Central Bank Governor Philip Lane. Photo: PA
Central Bank Governor Philip Lane. Photo: PA

One can just imagine the panicky phone calls that are being made this week from Frankfurt to the Dame Street headquarters of the Central Bank.

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"The Irish parliament is set to vote in legislation to regulate mortgage rates? Did we not see this Bill off a few months ago?

"And did we not tell your little parliamentarians and your Minister for Finance that you are not to get those powers?"

That call may not have happened - but it is the case that Central Bank Governor Philip Lane now finds himself in a tight spot on the variable rate issue.

The mandarins in the ECB in Germany do not like the idea that the Central Bank here will be given powers to tackle high variable interest rates on home mortgages.

But it is a problem of the Central Bank's own making. It has consistently failed to do anything about interest rate gouging by the banks. The issue affects 300,000 mortgage holders on variable rates.

Up until recently, the Central Bank was producing figures on mortgage rates that understated the extent of the rip-off, until this was exposed by consumer advocate Brendan Burgess and the Irish Independent.

Variable rates here are twice what they are across the Eurozone, something that has been consistently highlighted by this newspaper.

Fianna Fáil wants to re-introduce its Bill to regulate them - but the Government is playing for time by trying to get it put forward for what is called pre-legislative scrutiny. This is essentially an Oireachtas committee hearing into the detail of the Bill. But it seems that Fianna Fáil is in no mood to go along with Finance Minister Michael Noonan's delaying tactics.

None of this is comfortable for the Central Bank. It does not want to be able to regulate mortgage rates, and is unlikely to use such powers if it gets them.

However, it is hard to have sympathy for the Central Bank - as it has consistently put the interests of banks ahead of those of consumers on the variable rate issue. If it is feeling the heat on the topic now, hard luck.

Arguments are being made by Minister Noonan about the Bill being unconstitutional. But that case was not made when the legislation was previously voted down in the Dáil.

And Mr Noonan's argument that the prospect of a new lender in the market - Frank Money - is exercising competitive pressure on rates is also disingenuous.

If Frank Money gets approval, it will go after new borrowers and prime switchers. That will leave around 100,000 borrowers stuck with their existing, overcharging lenders.

People who are in negative equity, who have been in arrears or who have had to reschedule their mortgage will not be able to switch.

This means there is a risk that any new lenders and the existing players would chase prime borrowers - people with equity built up in their properties and a clean credit record - and continue to charge excessive rates to trapped customers.

And that is why legislation is key.

There is a way to go yet on these legislative attempts to stop the great mortgage rip-off, but right now it is not looking good for the Central Bank or the overcharging lenders that it regulates.

Irish Independent

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