Saturday 16 December 2017

Pressure for banks to cut rates on variable mortgages

Charlie Weston Personal Finance Editor

BANKS have been called on to cut the rates on variable mortgages after a sharp fall in the borrowing costs for lenders.

Banks have repeatedly cited the high costs of funds as the reason variable rates are more than double tracker rates.

But the borrowing costs for Irish banks have fallen by about 1pc over the past six months.

Variable rates have spiralled upwards over the past six years of the financial crisis, a time when eurozone rates have hit an all-time low.

Tracker rates are tied into the European Central Bank, and have to come down when the eurozone rate falls.

The gap in repayments is now more than €400 a month between what a family is typically paying on a variable compared with someone on a tracker mortgage.

Chairman of the Consumers' Association Michael Kilcoyne called on the Department of Finance to force the domestic banks to cut their variable rates.

"The Department of Finance should force the banks to pass on lower funding costs to consumers. The banks will still make the same profit margin and would lessen the pain for hard-pressed families."

Michael Dowling of the Independent Mortgage Advisers' Federation said a cut in variable rates would help the 96,000 residential mortgage account-holders who are three months or more in arrears.

He said banks were arguing that they were now lending for mortgages at a level that was profitable, but he said there was still scope for a cut.

The average variable rate is around 4.5pc, compared with interest charged on trackers of 1.25pc, he said.

But the body that represents banks insisted that mortgage rates, both variable and tracker, were competitively priced.

The Irish Banking Federation said the latest ECB data showed the average housing loan cost in Ireland to be competitively placed relative to other countries and below the euro-area average.

However, these ECB figures include tracker rates, which are among the cheapest mortgages anywhere.

The vulnerability of variable mortgage holders to being targeted by banks for higher profits was highlighted to TDs and senators by the head of the Fiscal Council recently.

Prof John McHale pointed out that banks were increasing variable interest rates at a time when the ECB was lowering its rates.

He said: "Variable mortgage rate holders are very vulnerable, especially when they are in negative equity."

Irish Independent

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