Thursday 22 February 2018

Consumer watchdog opposes new law to cap interest rates on variable mortgages

Finance minister Michael Noonan. Photo: Tom Burke
Finance minister Michael Noonan. Photo: Tom Burke
Charlie Weston

Charlie Weston

The State's consumer protection body has come out against moves by politicians to cap variable mortgage rates.

The Competition and Consumer Protection Commission claims the Michael McGrath-sponsored bill will limit competition.

It warns that banks will only lend to low-risk borrowers, the Irish Independent has learned.

The Central Bank, European Commission, European Central Bank and Finance Minister Michael Noonan are all opposed to the mortgage capping bill.

In a submission to an Oireachtas committee considering the bill, the commission said a mortgage rate cap would lessen competition in the market.

The commission said it "has serious concerns about the proposal and believes that, if enacted, the bill would likely limit competition in the market for principal dwelling house mortgage loans, thereby acting to the detriment of the very consumers that it wishes to protect".

It comes as the commission has been asked by the Government to examine the poor levels of competition in the mortgage market here.

The Fianna Fáil legislation to cap mortgage rates was due to be enacted by the summer.

But this deadline is likely to be missed, after the Oireachtas committee considering it agreed to a request from Mr Noonan (inset below) to refer the legislation to the Attorney General, along with the independent legal advice the committee got concluding that the bill is not unconstitutional.

The bill is currently going through pre-legislation scrutiny by the Oireachtas Finance Committee because of fears it could contravene the Constitution.

The commission claims that if the legislation is enacted allowing the Central Bank to cap variable mortgage rates, it would actually see rates rise, and restrict lending to those who present a very low risk.

It would also deter new entrants from coming into the market.

"There is considerable international evidence that capping interest rates in this way leads to less competition and ultimately harms the very consumers it is designed to protect," the commission said in its submission.

About 350,000 Irish homeowners on variables are paying double the eurozone average.

The Fair Mortgage Rates Campaign said last week banks were benefiting from a €800m profit on variable rate mortgages.

The submission to the Oireachtas committee comes as the commission is carrying out an investigation into low levels of competition in the mortgage market.

The review is being carried out on foot of a commitment in the 'Programme for a Partnership Government', agreed between Fine Gael, Independents and Fianna Fáil.

Irish Independent

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