Thursday 23 May 2019

The great rip-off: how banks are fleecing us

Photo: Reuters
Photo: Reuters
Charlie Weston

Charlie Weston

Water costs just a drop in the ocean compared to variable mortgage rates.

This country would break your heart.

For the two months since the general election, Fianna Fáil and Fine Gael have argued over water bills.

The cost for a year of the bills Irish Water has issued is €260 for a family. When you take account of the conservation grant, the net cost is even lower.

The rip-off on variable rate mortgages amounts to €2,500 a year. And this issue affects some 300,000 families.

That means that the mortgage rip-off is 10 times the cost of the water bills.

So why all the insane and immature political posturing over a relatively small bill - especially as there is a logic to ensuring we have clean water and reduce pollution?

The bottom line is that in the two months politicians have been arguing over water instead of forming a government, there was no pressure on the banks to cut blatantly unreasonable variable rates.

Rates here are 2pc higher than the eurozone average.

A study by the Irish Independent shows first-time buyers and existing homeowners are paying a huge premium for the same mortgage compared to counterparts in France, Germany, Spain and Cyprus.

Homeowners are paying €2,500 more a year for their variable mortgages than European counterparts.

Variable mortgage rates in this country are currently the highest in the eurozone.

The average variable rate mortgage holder here is paying 2pc more than their eurozone counterpart.

However, there are now indications that some banks are prepared to reduce their variable rates - if they come under enough pressure from a new administration.

But at the moment they are happy to sit back and reap the super-profits from overcharging their trapped variable rate customers.

And overburdened variable rate holders cannot expect any help from the Central Bank.

Governor Philip Lane this week dismissed calls for a limit on mortgage rates - arguing that any such legislation could deter potential market entrants.

Thankfully, our European parliamentarians are less coy.

The 11 MEPs for the country have written to the president of the European Central Bank Mario Draghi calling on him to investigate our sky-high variable rates.

Banks are now actually starting to make profits on tracker mortgages - raising questions about why banks are charging so much for variable rate mortgages.

But there was a fall in March in the numbers seeking to switch their mortgages.

This is a pity, because switching is a good way to put pressure on banks on rates.

Mass switching would rattle the banks and they would quickly start to offer better value.

One-in-five homeowners would be better off by moving to another lender, according to the Central Bank.

Potential savings of €2,000 a year are possible. And there is hope of more competition in the market with the expected arrival of a new lender.

Frank Money is aiming for rates of 2.8pc - some 0.5pc lower than the best variable rates offered by the banks.

The new lender is awaiting approval from the Central Bank to enter the mortgage market, and will be targeting switchers and new borrowers.

All of this means the arguments are stacking up against the banks maintaining their excessively high mortgage rates.

When we get a government, at least some of our lenders may have little choice but to buckle on the variable rate rip-off issue.

Irish Independent

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