Saturday 14 December 2019

Charlie Weston: 'Central Bank is great at seeing what's wrong - but just won't act'

Central Bank Deputy Governor Ed Sibley, Photo: Tony Gavin
Central Bank Deputy Governor Ed Sibley, Photo: Tony Gavin
Charlie Weston

Charlie Weston

The Central Bank is adept at identifying consumer detriment - a loss suffered when buying products or services that are overpriced or do not meet their requirements.

Deputy governor Ed Sibley blew away the spin of the bankers yesterday when he dismissed the claims of banks and their apologies that they have no choice but to charge sky-high mortgage rates here.

Mortgage interest rates in this country are twice the average level for the eurozone.

Rates here fell below 3pc in September, but they are half that on average in the bloc.

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This means typical new buyers here with a €300,000 mortgage over 30 years are paying €235 more a month than the average for the currency bloc. This works out at €85,000 over the lifetime of the mortgage.

Banks here blame the fact they are required to set aside more capital than their eurozone counterparts when they issue a mortgage, due to high default levels.

But Mr Sibley has smashed that excuse.

He described the Irish mortgage market as "dysfunctional".

The deputy governor said Irish banks can lend profitably while charging rates as low as 2.25pc to new customers, but still charge often unaware existing customers up to twice that level.

"It's also true to say that Irish banks are determining that it's profitable to lend at somewhere between 2.25 and 3pc for new customers, but are continuing to charge 4.5pc for existing customers. So before there's too much complaint about capital levels driving interest rates, which is a factor, they also need to look in the mirror and make a determination as to whether they're treating and delivering for their customers in way that's sustainable for both the new and existing customers," he said.

Brilliant. That cuts though the bankers' whingeing.

Of course, higher levels of arrears and the difficulty repossessing properties when the mortgage is not being paid are factors keeping interest rates high here.

But it is refreshing that the Central Bank has finally recognised that banks are not being totally honest with us about high mortgage rates here.

What has been correctly identified by Mr Sibley is also blatantly practised in the insurance industry.

Dual pricing means some insurance customers are charged far more than others, even when they present the same risk.

The Central Bank has finally been bounced into probing this dual-pricing practice. But it warned yesterday its investigation could take years. And it is not even convinced that dual pricing is a bad thing.

At some stage, we will relieve the Central Bank of its consumer protection role.

It is getting embarrassing when even its own officials admit consumer detriment is being imposed by the firms it regulates - yet it is so reluctant to take meaningful measures to stamp out these toxic practices.

Irish Independent

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