Exclusive: Banks to slash mortgage rates on variable-interest mortgages
The country's banks have all agreed to cut variable mortgage interest rates or offer customers the opportunity to switch to more favourable fixed rates, the Irish Independent can reveal.
Finance Minister Michael Noonan will today declare victory over the lenders in a long-running dispute over the interest being paid by 300,000 homeowners.
It follows a series of meetings with AIB, Bank of Ireland, Ulster Bank, Permanent TSB, ACC and KBC.
The news will come as a welcome relief to mortgage holders who are paying the highest rates in Europe.
A source said that the banks had committed to giving customers a better deal within the next two months.
It is expected that by the start of July, arrangements will be in place for variable rates to be reduced, most likely by around 0.25pc. A further cut by each of the banks has been pencilled in for September.
Alternatively, homeowners will be given the option of dropping their variable rate altogether and switching to a fixed-rate mortgage.
Ultimately it is hoped that all borrowers will be able to access a mortgage interest rate below 4pc.
The banks are understood to have put up a strong resistance to Mr Noonan's demands for a price reduction.
However, faced with the likelihood that public pressure would lead the minister give the Central Bank extra power to moderate interest rates, the banks have capitulated.
"There was a game of chicken going and it seems the banks broke first," said a source.
During his meetings, the minister showed the bankers a report written by Central Bank Governor Patrick Honohan which warned that the power to regulate rates will be brought in if they do not lower "exploitative" variable rates.
Variable rates in Ireland average around 4.5pc and customers are paying around €350 a month more in interest than in other EU countries.
The gap between variables here and in the rest of the eurozone is around 2pc.
A 0.25pc cut in the variable-mortgage rate would save a family with a €300,000 mortgage €42 a month.
Mr Noonan would have been hesitant to introduce legislation, as it would have meant ripping up legal agreements put in place between the Department of Finance and State-supported AIB, Bank of Ireland and Permanent TSB.
A copy of the 'Relationships framework' agreements, seen by the Irish Independent, shows the Government has committed to not intervening in day-to-day management decisions of the bank "including with respect to pricing and lending decisions".
The AIB document states: "The minister will have no function in individual lending decisions or the pricing of loans, both of which remain the responsibility of the board and management of the bank."
Asked about the agreements, a Department of Finance spokesman said: "The minister has said that he will use his influence to achieve a satisfactory outcome. The meetings to date have all been very positive."
The banks have committed to coming up with definitive proposals for cutting rates within weeks. The timeframe is partly down to Permanent TSB, who is restricted from interfering with its rates until July.
It has just gone to the market to raise capital, meaning it cannot discuss changing its business model or price changes for 40 days.