Sunday 17 December 2017

Government 'is letting AIB bleed homeowners'

Warning of no money left to pay property tax

Criticism: Constantin Gurdgiev and TD Michael McGrath
Criticism: Constantin Gurdgiev and TD Michael McGrath

PHILIP RYAN

THE Government has been accused of standing back as AIB "bleeds the ordinary householder dry" following the bank's decision to hike up its variable-interest rate for the second time in two months.

The State-owned bank shocked its customers earlier this week when it announced that it would be raising its interest rate by 0.5 per cent to 4 per cent -- two days after the bank had paid €1bn to senior unsecured bondholders.

The bank, which has received a €21bn bailout from the taxpayer and is now 99.8 per cent owned by the State, increased its interest rate, despite the ECB halving its rate in the last 12 months.

The widely condemned move, which affects the bank's 70,000 variable-rate customers, will see already-struggling homeowners coughing up an extra €1,222 a year for a standard €200,000 mortgage.

The bank said the hike was a necessary measure to restore its balance sheet and aid a return to profitability.

The Government claimed that it could not question AIB's decision because of the relationship framework it entered into with the bank in March, which does not allow it to intervene in the day-to-day operations of the bank.

However, in November last year, AIB executives were hauled into Government Buildings, where Finance Minister Michael Noonan and Taoiseach Enda Kenny demanded that the bank pass on an ECB interest-rate cut.

Economist Constantin Gurdgiev blasted the Government, saying it has taken "a talk-tough but do-nothing" approach to the banking crisis and that it is standing idly by as banks drain any cash that is left in the economy.

ANALYSIS PAGES 27, 28

"The longer this process of banks extracting every bit of blood out of the economy and out of people's budgets continues the longer we are preventing the return to normalcy or functioning of this economy and this society as well," said Mr Gurdgiev.

"You don't return to profitability by destroying your customers. You return to profitability by balancing and readjusting your books -- writedowns need to be taken -- and by looking at your assets.

"Come December, the Irish Government is going to come with the exact same demand on the same households.

"I would like to know what Michael Noonan is thinking when he is reading the newspapers and hearing that the banks are right now extracting the same cash that he would be aiming for in terms of tax."

Mortgage expert David Hall lambasted AIB, saying it was "absolutely obscene" that a State-owned bank would force another interest rate increase on its customers in the weeks before what is expected to be the Government's toughest Budget yet.

He said: "The banks are in charge. It's very, very clear for a number of years who is running the show and the banks are moving on with their own agenda. It doesn't make any sense to allow a 0.5 per cent increase happen two months out from a major Budget."

Mr Hall also criticised the lack of action on the Government's behalf in addressing the escalating mortgage-arrears crisis.

He said: "Four years down the line, this is like watching someone haemorrhage and all they're trying to do is put a little fun plaster with cartoons on over it. It requires radical intervention and the longer you leave any intervention, the more difficult and more painful it's going to be.

"The banks are sick and all the institutions are doing now is letting everyone stay in financial palliative care."

Sinn Fein's Finance spokesman Pearse Doherty said the Government's intention to add a property tax on top of what these householders are struggling to cope with was lunacy.

He added: "You can't bleed a stone. The banks are learning that as more people go into distress with mortgages and the Government is about to learn that with taxes. The lower incomes have already been driven into poverty and this Government is sending middle Ireland there too."

Meanwhile, the gap between repayments for customers on tracker mortgages and those on variable rates continues to grow at an "unjustifiable rate", according to Fianna Fail spokesman Michael McGrath.

The TD calculated that over the course of a 20-year mortgage the variable-rate customer will end up repaying AIB €53,700 more than the holder of a tracker mortgage.

Mr McGrath added: "It is unjustifiable to have two families owing the exact same amount of money to a bank, with several hundred euro in a difference every month in the amount they have to pay."

Sunday Independent

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business