Thursday 22 February 2018

New hope for borrowers in variable rate nightmare

Banks face having to slash interest rates on thousands of mortgages and paying refunds

Picture posed: Thinkstock
Picture posed: Thinkstock
Charlie Weston

Charlie Weston

Fresh hope for variable rate mortgage holders arose after North County Dublin couple, Kenneth and Donna Millar took a case to the financial services ombudsman.

The couple were disputing the move by their bank, Danske, to push up their variable rate mortgage to more than 4pc at a time when the European Central Bank rate is close to zero.

Their rate is 80 times higher than the ECB key lending rate.

The Millars have a home mortgage and six other investor mortgages on variable rates with Danske Bank, none of which are in arrears.

They argued that their mortgage contracts state that the interest they are charged has to reflect "market conditions".

Ombudsman Bill Prasifka rejected their complaint.

But when the case was then appealed to the High Court, Mr Justice Gerard Hogan instructed the ombudsman to reconsider the case.

Judge Hogan said the resolution of the issue raised a fundamental question of what was the true role of the ombudsman.

Read more: Bankers face day of reckoning over mortgage-rate apartheid

Both the ombudsman and Danske then appealed this judgment to the Court of Appeal.

The three judges in that court reserved judgment, which means they will provide a written decision at a later date.

Success for the Millars will have massive implications for around 320,000 homeowners on variable rates, and another 60,000 buy-to-let investors.

The case was heard before Mr Justice Peter Kelly, Ms Justice Mary Finlay Geoghegan and Mr Justice Michael Peart this week.

Founder of the Askaboutmoney.com website Brendan Burgess said: "The banks are scared stiff that the High Court judgment, which found against the ombudsman, will be upheld by the Court of Appeal.

"The implications for this are huge. It could affect almost everyone with a variable rate mortgage."

Barrister David Langwallner, who represented the Millars, said the case has huge implications.

"It will be a precedent-setting judgment, as it will regulate the banks' capacity to vary standard variable rates, if there is a qualifying ability to vary rates in the contact.

"And it will regulate the extent of the judiciary's ability to review the decisions of the financial services ombudsman."

Flurry

He said a win for the Millars will likely prompt a flurry of similar legal challenges to get variable rates reduced.

Financial adviser Padraic Kissane, who provided financial advice as part of the Court of Appeal case, said the final decision will have implications for most of those with a variable-rate mortgage.

"We have the dearest standard variable rates in Europe. Variable rates are no longer in line with market rates."

He said that banks started pushing up variable rates in 2009, just as the ECB rate started to fall.

The lenders realised that they could not make any money from new mortgages, as the housing market had collapsed. So banks pushed up variable rates to recoup some of their losses.

Read more: Prices in Dublin stall amid uncertainty over mortgage rules

Water-tight tracker contacts meant they could not changes the rates charged on these unless the ECB rate moved.

However, large numbers of variable mortgage contracts include terms stressing that variable rates can only move in line with market conditions, as is the case with the contacts in the Millar case.

This leaves banks vulnerable if the Court of Appeal comes down on the side of the Dublin couple.

Mr Kissane said that if the Millars win, most banks will face having to reduce their variable rates, and compensate consumers for being overcharged on variable rates.

Up to 2009, variable and tracker rates used to move in tandem with the European Central Bank rate. The rates tended to only move when, and in the same direction, of the ECB rate.

But a year into the downturn banks started hiking variable rates, even though the ECB was cutting its key rates.

The eurozone average for existing homeowners is 3.14pc.

But variable rates here are much higher, and are now at least four times higher than trackers.

Irish Independent

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