Homeowners' hopes of mortgage rate cuts dashed

The campaign to get mortgage rates reduced has suffered a major setback.

It comes after the Court of Appeal ruled that a bank was entitled to push up its variable rate at a time when Eurozone interest rates were falling.

And the ruling of the three judges was described as evidence that the system puts the interests of banks ahead of consumers.

The case arose after couple Kenneth and Donna Millar, from Portmarnock, Co Dublin, complained to the Financial Services Ombudsman that their mortgage contracts were breached by Danske Bank when it increased the interest rates they were charged - at a time when European Central Bank (ECB) rates were falling.

Campaigners for lower variable rates had hoped victory for the couple would have opened up the possibility of banks being forced to radically reduce variable rates to reflect lower money market interest rates.

Variable rates here are almost double those charged in the rest of the Eurozone, forcing some 300,000 Irish people with these mortgages to pay thousands more than those elsewhere in Europe, and far more than those with trackers.

The Court of Appeal reversed a decision of the High Court that had told the ombudsman to reconsider a ruling as to how variable interest rates were set.

The Millars had disputed the move by Danske, which used to trade as National Irish Bank, to push up their variable rate mortgage by almost one percentage point to 4.35pc, at a time when market rates were collapsing.

The couple have €1.5m in mortgages. They wanted the ombudsman to declare their agreements null and void, and sought compensation and refunds for all interest paid up to October 2011.

When former ombudsman Bill Prasifka rejected their claim, they appealed to the High Court, where Mr Justice Gerard Hogan backed the couple.

The Millars successfully argued that their contracts meant the bank could only increase their variable rates in line with general market interest rates.

This High Court ruling was appealed to the three-member Court of Appeal by both Danske and the ombudsman.

Yesterday, the Court of Appeal overturned the High Court finding. The appeal court found that the courts were not entitled to interfere with the decisions of the ombudsman unless he made an error in law.

Mr Justice Peter Kelly, one of the three appeal court judges, agreed with the ombudsman.

The phrase "in line with general market interest rates" was not in the terms and conditions of the Millars' mortgage contracts, he said.

Their contracts say rates are altered in response to market conditions and may change.

The Millars wanted to rewrite the contract "in accordance with a script prepared by them", he said. Mr Justice Hogan was wrong to refer to market conditions generally, he said.

The ombudsman had been correct in rejecting the contrived construction which the Millars sought to place on the mortgage contract, he added.

Financial expert Padraig Kissane, who supported the Millars, said the ruling showed the interests of the banking system were put ahead of those of the consumer.

Unfair

"It is extraordinarily unfair, but it shows that in the financial world in Ireland the customer is always wrong," Mr Kissane said.

If the Millars had won, banks would have been forced to reduce variable rates, he said.

Barrister David Langwallner, who represented the Millars in the appeal hearing when it was heard earlier this year, was highly critical of the judgment.

He said the judges had effectively ruled that banks were allowed to subjectively interpret what exactly market interest rates are and what cost of funding means.

What the Finance Minister can do to force banks' hand

Is there nothing the minster can do to get variable rates reduced?

Wrong. Finance Minister Michael Noonan should carry out his threat to give the Central Bank the powers to force banks to reduce their variable rates. Governor Patrick Honohan does not want this power, but we already cap what both credit unions and moneylenders can charge, although moneylender rates are sky-high.

Sure competition will sort out the issue?

Well, that has failed to happen up to now. We waived State aid and competition rules when we bailed out the banks. Why would international banks come in here when one of the big players, AIB, got €21m in a bailout?

This Court of Appeal decision in the Millar case, what does it mean?

Had the Court of Appeal upheld an earlier High Court judgment, banks would have been forced to reduce their variable rates to reflect the fact that market rates are at all-time lows.

Kenneth and Donna Millar, from Portmarnock in Co Dublin, had complained to the financial services ombudsman that their mortgage contracts were breached by Danske Bank when it increased their interest rates.

The couple disputed the move by Danske (which used to trade as National Irish Bank) to push up their variable rate mortgage to 4.35pc at a time when market rates were collapsing.

Now the appeal court has decided that the bank is effectively free to set the variable rate as it sees fit.

But variable rates are high because banks are recovering and have high levels of arrears?

The arrears issue has festered and got worse because the banks have been too slow to act on it.

Punishing 300,000 customers on variable rates because banks made bad decisions in the past and are now making losses is hardly fair.

Just how high are variable rates?

Families on variable rate mortgages have to work almost three months more than those on trackers just to afford the extra cost of their expensive home loans.

The gap in costs is so great between variable rates and trackers that a family will need to earn €12,500 a year just to pay the premium being charged on variables.

The extra cost imposed on families means that a two-parent household will have to work 11 weeks more in a year to pay for it, according to calculations done by the Irish Brokers Association.