Sunday 21 January 2018

Variable rates '€1.2bn more' here than in EU

Test cases to challenge our sky-high mortgage rates due before High Court 'within months'

Ross Maguire of New Beginnings, speaking at the Standard Variable Rate (SVR) Campaign at the Ballsbridge Hotel in Dublin last week.
Ross Maguire of New Beginnings, speaking at the Standard Variable Rate (SVR) Campaign at the Ballsbridge Hotel in Dublin last week.
Brian Hayes MEP

Jerome Reilly and Philip Ryan

Irish householders on sky-high variable rate mortgages are paying an astonishing €1.2bn more each year in interest as the banks enforce rates twice as high as the rest of Europe, new figures reveal.

And the interest differential is now so big that 300,000 variable rate mortgages are being "gouged" for an additional €1.2bn in interest that they shouldn't have to pay, MEP Brian Hayes, the former junior minister at the Department of Finance, said.

"There are 300,000 variable rate mortgages but this scandal affects 500,000 people. It's slowing down the Irish economy because money which should be spent in shops and the wider economy is being sucked up by the banks in exorbitant interest rates," Mr Hayes told the Sunday Independent.

Analysis of rates across Europe shows an Irish family with a standard variable rate mortgage on a €200,000 loan is paying on average 4.2pc.

In the rest of the eurozone, the average interest rate is now down to just 2.09pc.

"It means Irish borrowers are paying around €350 a month more interest than they would be paying if their €200,000 mortgage were in some other country," Mr Hayes added.

The interest rate for those lucky customers with a tracker home loan is typically little more than 1pc.

Variable rate interest rates are set to be challenged in the courts in the next few months.

Solicitors for New Beginning, the legal company which provides legal advice to distressed borrowers, expects cases to be ready to come before the courts within months.

Ross Maguire SC of New Beginning says there are two types of variable rate interest overcharging cases which could be the basis of successful High Court challenges.

The first type of case is where the mortgage agreement explains how the interest rate can vary.

"Examples are where it says that the rate varies 'in line with market interest rates', or 'according to market conditions', or is 'directly affected by the rise and fall of the ECB rate'," he told the Sunday Independent.

He cited the recent case of Millar v Danske Bank where the loan document stated that the rate would vary 'according to market conditions' and elsewhere on its website the bank stated that the rate would vary 'in line with general market interest rates'.

The couple challenged the bank in the courts when their interest rate went up while, at the very same time, the ECB rate went down.

The Millars had first complained to the Financial Services Ombudsman who found against them. They appealed to the High Court and the High Court decided that the Ombudsman was wrong.

Dankse Bank has appealed the case to the Court of Appeal and the decision is due shortly. The outcome could be vital for many thousands of householders with similar mortgage agreements.

"If the Court of Appeal finds the High Court was correct, it will open up the possibility of lots of cases being brought against lenders who use this type of language in their documents. These lenders are mainly the foreign banks and the sub-prime lenders," Mr Maguire said.

The other potential avenue for a legal challenge will be aimed at the Irish banks. Their mortgage agreements generally state that the bank can vary the interest rate 'at the bank's complete discretion.'

Mr Maguire argues that European Union law says that a loan which allows a bank to vary the interest rate without a valid reason is "unfair" and unfair terms are not allowed.

"Borrowers could be entitled to repayment of the overcharged amount which could be thousands of euro for many ordinary citizens. We estimate that the average amount of overcharge in Ireland is as high as €3,500 per year and this has been going on for six years," he said.

Mr Maguire told a meeting of nearly 200 angry variable rate mortgage holders in Dublin last Thursday night that the best way forward is to run with a number of test cases.

"One thing is pretty certain - the banks will fight these cases, tooth and nail," he said.

Meanwhile, the Sunday Independent has learned there are now serious concerns among senior levels of Government over the impact of cutting the bankruptcy term to one year will have on Credit Unions.

The Labour Party has suggested that cutting the bankruptcy term will force banks to cut deals with homeowners struggling to make mortgage repayments.

Coalition sources involved in drafting the Government's emergency policy on tackling the mortgage crisis said the proposal to reduce the bankruptcy term from three to one year is "in the mix".

However, there are fears the measure will not actually punish banks.

Instead, sources believe the proposal tabled by Labour backbencher Willie Penrose will result in Credit Unions being forced to write-off debts from those who become bankrupt.

"If we bring bankruptcy down to one year, we won't end up punishing the banks because the banks will keep the home. The people who will be affected by this are the people who have unsecured lending, for example, the credit unions," a source told the Sunday Independent.

"Backbenchers have been very vocal about the need to protect credit unions. Do they really want to bring in reform that will see credit unions lose on unsecured lending?" the source asked.

The Coalition's mortgage plan will include measures to give the courts the power to veto bank rulings on debt deals.

Currently, homeowners have no recourse if a bank rejects a debt deal.

The package is expected to go before Cabinet this week and will loosen the banks' stranglehold over the Personal Insolvency Service and should result in more people keeping their homes. The Government is also considering giving free legal advice to homeowners in negative equity who are trying to cut deals with banks on mortgage repayments.

Sunday Independent

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