Tuesday 11 December 2018

Central Bank accused of failing to protect mortgage holders after bringing in new rules for banks

Photo: Stock Image
Photo: Stock Image

Charlie Weston Personal Finance Editor

The Central Bank has been accused of failing to protect mortgage holders after it brought in new rules for banks but failed to ban controversial mortgage cash-back offers.

Opponents of the incentives argue that cash backs are a device by lenders to avoid cutting interest rates.

Academic research has found that consumers cannot properly assess these types of incentives and often make poor choices.

Bank of Ireland, EBS and Permanent TSB offer of 2pc in cash back when someone signs up for a new mortgage or when they switch.

The Central Bank has now announced new measures to encourage mortgage holders to switch to a better deal, but the changes have been dismissed as weak and unlikely to be of any benefit to consumers.

Rather than banning cash-back deals, the Central Bank has told lenders to be much clearer in their adverts to ensure those taking out new mortgages and switchers understand the cost implications of taking out a mortgage with a cash-back offer.

A review of adverts for cash-back deals and other incentives, such as a contribution towards conveyancing costs, by the Central Bank found 75pc of them were in breach of consumer protection rules. Lenders were told to withdraw or amend the adverts.

However, the Central Bank denied it was allowing banks to dictate the rules by refusing to ban cash-backs deals for new mortgage borrowers and switchers.

The Competition and Consumer Protection Commission has warned that cash-back offers are bad for consumers, as they have the potential to “exploit consumer biases”.

The new rules issued by the regulator to encourage switching will force lenders to make a decision on all mortgage applications – both new and switcher – within 10 days.

This applies once a completed application has been received. But the lender will be able write to consumers and request more time.

In another bid to encourage switching, lenders will also have to tell consumers coming off a fixed rate mortgage the interest rate they will roll to, and set out other options.

Consumers on variable rates will have to be told every year if they can move to a lower rate from the same lender based on any equity they have built up in the home.

Research shows over 150,000 mortgage holders would save money by switching their mortgage to another lender.  Fianna Fáil has proposed legislation on mortgages that would ban cash-back offers.

The party’s finance spokesman Michael McGrath said: “I am disappointed but not surprised that the Central Bank has failed to remove these cash-back incentives from the market. The truth is these incentives make it incredibly difficult for consumers to properly compare mortgage products across lenders.”

Banks, including Bank of Ireland, Permanent TSB and EBS, offer cashback of 2pc of the value of the mortgage drawn down to switchers and first-time buyers. This works out at €2,000 for every €100,000 borrowed.

Founder of the Askaboutmoney.com website Brendan Burgess said the that yet again, the Central Bank has shown that it has no interest in doing anything at all about high mortgage rates in Ireland. “It wants to give the appearance of doing something, but in reality it supports high mortgage rates so that Irish banks will continue to be profitable.”

He claimed the Central Bank wants to discourage any foreign lender from entering the market by creating an expensive and pointless regulatory and compliance regime.

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