Bank snubs call for mortgage cut with 1pc hike in rates
Several lenders yet to pass on last reduction despite Regulator threat
A LEADING mortgage lender is defying the Government and Central Bank by pressing ahead with a 1pc increase in its variable home-loan rates on Friday.
The decision challenges the authority of Financial Regulator Matthew Elderfield and could have huge ramifications for more than 200,000 homeowners on variable rates.
National Irish Bank (NIB) yesterday defended its move to raise rates -- even though it will come into effect a little more than a week after the European Central Bank (ECB) cut its lending rate.
All lenders have been under huge pressure from regulators and the Government to pass on the reduction.
Last month Mr Elderfield, who is also deputy governor of the Central Bank, told lenders to stop pushing up variable rates. The Central Bank said last week that cuts in the ECB rates should be passed on to those on variable rates.
And Taoiseach Enda Kenny said on Friday he would bring in laws to force lenders to lower rates in response to ECB cuts.
However, Mr Elderfield has admitted he has no direct powers to tell banks what mortgage rate to charge.
So far, just Halifax/Bank of Scotland and Irish Nationwide have joined Permanent TSB and KBC Bank in agreeing to pass on the ECB rate cut to variable rate customers. There has been no announcement yet from Bank of Ireland, EBS, AIB or Ulster Bank.
Hikes in variable rates have been blamed for pushing thousands of people into mortgage arrears.
But now Danish-owned NIB is not only refusing to pass on last Thursday's eurozone rate cut to its variable rate customers, it is poised to impose an increase.
The rate rise was first announced last month, but the fact that the bank will not row back on it is seen as a direct challenge to the Central Bank and the Government.
The increase means the bank's different variable rates rise by between 0.2pc and 0.95pc. This will leave NIB's variable rates at between 4.35pc and 4.6pc.
A family with a €200,000 mortgage will see their monthly repayments go up by €100 as a result.
And at the same time as NIB is putting up rates, what it pays for deposits is falling.
The move to go ahead with Friday's hike in variable rates is the first major challenge to the authority of Mr Elderfield.
Variable rates across most lenders have risen in the past two years, even at times when the ECB did not move.
Tracker rates have to come down when the ECB drops its rates, but cuts to variable rates are at the discretion of lenders.
So far, six lenders are refusing to decrease their variable rates in response to last Thursday's ECB surprise rate cut. The six are: National Irish Bank, Bank of Ireland, AIB, EBS, Ulster Bank and Start Mortgages.
Yesterday National Irish Bank denied it was defying the Central Bank and the Government.
It said it had not hiked its variable rates since June 2008, and argued that its cost of funding was not based on the ECB rate but instead on other market costs.
"The changes in no way relate to any ECB interest rate fluctuations as the bank does not rely on the ECB for funding.
"We did not change our variable rate products when the ECB rate increased twice earlier this year."
Asked for a comment, a spokeswoman for Mr Elderfield referred the Irish Independent back to his speech on the issue last month when he said that regulators had no direct powers to tell lenders to cut rates.
But he added: "It seems they are courting the risk of a public policy response involving powers to impose direct restrictions on their rate-setting capacity by the competition or financial regulatory authorities."
Mr Kenny said he was prepared to consider introducing legislation to compel banks to pass on interest-rate cuts.