Saturday 16 December 2017

Government and Central Bank have 'no role in setting of variable rates'

Simon Harris, Fianna Gael TD
Simon Harris, Fianna Gael TD
Charlie Weston

Charlie Weston

THE Government has no role in the setting of variable interest rates by banks, junior finance minister Simon Harris insisted.

He was responding to a Dáil motion, put forward by Fianna Fáil, calling on the Government to play an active role to get high variable rates decreased.

More than 300,000 existing homeowners are on variable rates, which are among the highest in the eurozone.

Variable rate mortgage holders pay almost 4.5pc. This is almost 1.8pc higher than the average rate charged in the eurozone. This means the average overpayment per borrower is €3,300 per year, or €275 per month. Fianna Fáil finance spokesman Michael McGrath said tens of thousands of mortgage holders were being ripped off.

"There are at least 300,000 households who are on standard variable rate mortgages. These families have benefited least from the current low interest rate environment in Europe," he said.

He said these families were forced to watch in frustration as their mortgage rates have steadily risen as rates generally have fallen. "In essence, they have been trapped in a situation which is costing them hundreds of euro a month. It is the number one issue affecting their household budget yet receives little or no attention from Government."

But Minister for State Mr Harris said the setting of variable rates was a commercial matter for the banks, and the Government was not able to intervene.

And he said the Central Bank has no statutory role in the setting of mortgage interest rates by banks. "The Minister for Finance has no statutory role in relation to regulated financial institutions passing on the European Central Bank interest rate change or to the mortgage interest rates charged by such institutions. Such decisions are commercial matters for each institution concerned," he told the Dáil.

The junior minister referred to statements by Central Bank governor Patrick Honohan that it would be counterproductive for regulators to control interest rates as this would discourage new entrants into the mortgage market here.

Mr Harris said the Central Bank has not put forward any proposals that it be given extra powers to regulate interest rates. And the minister said the cost of funds for banks here was higher than elsewhere in the eurozone.

The cost of funds is made up of base rates, deposit rates, market funding costs, the competitive environment and the overall funding of each bank.

However, Mr Harris acknowledged that there was a "perception of unfairness" around the variable rates charged by banks.

"The standard variable rate charged by the various financial institutions in Ireland is something which has a huge impact on individual households.

"It is easy to see how a perception of unfairness can develop when people look at the rates they are charged and compare them to rates being charged to other people, either in Ireland or elsewhere in the euro area," Mr Harris said.

The motion calls on the Government to engage directly with banks to emphasise to them the seriousness of the situation.

The motion calls for more data to be gathered on the number of existing variable rate customers and the cost of funds to banks.

Also called for is "greater urgency from the Central Bank to uphold its role as the protector of consumer interests".

AIB and Ulster Bank recently reduced their variable rates for existing and new customers.

Bank of Ireland, KBC and Permanent TSB reduced rates for new customers only. However, KBC has reduced its fixed rates for both new and existing customers.

Brendan Burgess of said borrowers were not being considered by banks.

Irish Independent

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