Saturday 18 January 2020

Lenders are accused of making €1bn super profits on mortgages

According to the Central Bank the average deposit rate has been cut back to 0.65pc
According to the Central Bank the average deposit rate has been cut back to 0.65pc
Charlie Weston

Charlie Weston

Banks have been accused of making "super profits" on new mortgages and variable rates for existing homeowners.

It has been estimated that the profit margins being charged are so high that banks are making €1bn a year from overcharging for the home loans.

Consumer advocate Brendan Burgess has accused the banks of having some of the highest profit margins on home-loan lending in the eurozone.

"They are gouging the variable rate customers - whether they are new or existing customers," he said.

"They are making super profits of €1bn every year from this overcharging," Mr Burgess of said.

He claims the banks are using the high lending costs to make up for losses on trackers and mortgages that are in default.

His comments came as a new report from stockbroking firm Davy showed banks are making huge profits on lending.

Analyst Emer Lang wrote in a new report on AIB and Bank of Ireland: "Increased new lending at higher margins is helping; new loans are typically commanding spreads of 300bps (basis points) over banks' blended average funding costs."

This means that it costs banks 1.5pc to get the funds and this money is then lent out for 4.5pc as mortgages. This works out at a gross profit of €300 a month on every €200,000 lent out.

Mr Burgess said the average mortgage for first-time buyers, and existing borrowers with variable rates, was 4.5pc.

The average rate across the eurozone is 2.64pc, according to the European Central Bank.

This meant an Irish homeowner with a mortgage of €200,000 was paying almost €4,000 more interest a year than their eurozone counterpart, he said.

"This affects all borrowers with variable rate mortgages and not just new borrowers. If the rates for new business were reduced to the eurozone averages, existing borrowers could switch lenders."


The cost funds for banks had collapsed, he said. Banks no longer have to pay the Government for the bank guarantee, known as the Eligible Liabilities Guarantee. This has gone since last March.

The ECB key lending rate is at an all-time low of 0.15pc, and the interest rates banks are paying depositors are down 63pc in a year. According to the Central Bank the average deposit rate has been cut back to 0.65pc.

The massive gap between what is charged for new and existing variable mortgages here and across the other 17 countries using the euro currency emerged from figures released by the Central Bank.

The Central Bank said average new mortgage rates here were 3.15pc, but has since admitted that this figure includes old trackers, on rates as low as 1pc, which have been restructured because the homeowners can't meet the payments.

The Irish Banking Federation had no direct response to the claims its members were making super profits. "We can only point to the ECB data for information on average housing loan costs in the euro area," its spokesman said.

"Interest rates are a matter for individual institutions in a competitive environment - with due regard to a range of factors which include the cost of funds, operating costs, the role of deposits, as well as their important role in supporting the wider economy."

Irish Independent

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