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Sunday 17 December 2017

Less than third to benefit from tough bank laws

Lenders may be forced to pass rate cuts on to homeowners under new legislation 'wish list'


The Government has told Financial Regulator Matthew Elderfield to draw up a "wish list" of new laws to force stubborn banks to pass on European interest cuts -- but fewer than one in three households would benefit from a tough new regime.

In all, 230,000 (30 per cent) of households are on variable-rate mortgages and a significant number of those have mortgages with the six financial institutions which have already signalled their intention to cut rates.

Another 425,000 (55 per cent) of mortgage holders are on tracker products which are linked with European Central Bank (ECB) rates and automatically fall with a rate cut. Another 115,000 mortgages (15 per cent) have opted for fixed-rate mortgages ranging from two, three, five up to 10 years.

The Government had hoped that an interest rate cut by the major lenders would slash €34 a month off repayments on a €250,000 mortgage, and would help soften the blow of a range of new levies and charges planned for the Budget.

But Bank of Ireland (BoI), State-owned Allied Irish Bank (AIB) and Ulster Bank all declined a request to cut their rates at a meeting with the Government last Wednesday.

AIB later reversed its decision and is now cutting its rates in line with government demands.

BoI chief executive Richie Boucher has refused to say if his bank will cut variable rates.

Ulster Bank boss James Brown also declined to clarify if the bank would pass on the 0.25 per cent cut introduced by the ECB last week.

By Friday, six lenders confirmed they were passing this reduction on to variable-rate customers. Permanent TSB, KBC Bank, Irish Nationwide, Bank of Scotland/Halifax and EBS have all cut their rates -- and were joined later by AIB.

National Irish Bank, owned by the Danske Bank Group in Denmark, which accounts for about 2 per cent of all mortgages held in Ireland, has refused and decided to go ahead on Friday with a 1 per cent increase announced some time ago, bringing their rate to 4.35 per cent, while Permanent TSB's new rate will be 5.44 per cent.

A Sunday Independent study of current interest rates shows that both AIB and BoI are among the institutions offering the lowest interest rates on variable-rate mortgages.

State-owned AIB's new rate of 3 per cent is the cheapest, while BoI, which comes in at 3.99 per cent, is substantially lower than EBS, which will be charging 4.68 per cent after the 0.25 per cent rate cut -- which applies from November 16 onwards.

The current rate for the ICS is 4.15 per cent while new rates announced by Irish Nationwide will be 4.23 per cent. KBC Bank, however, will leave its variable rate at 4.25 per cent.

Ulster Bank's rate so far remains unchanged at 5.15 per cent.

Michael Dowling of the Independent Mortgage Advisers' Federation said that the ECB decrease should be passed on to consumers, especially by those institutions which had taken advantage of recent increases to hike their variable rates above and beyond the increase laid down by the ECB.

"There are more than 200,000 variable rate customers in Ireland. It's important now more than ever that they benefit from the decreases laid down by the ECB," Mr Dowling said.

"As a matter of fairness it seems totally wrong that financial institutions can choose whether they pass on decreases.

"To be fair AIB did not pass on the last two ECB rate increases to customers and it has passed on the decrease. It now has the cheapest rate available to existing and new customers in the market," he said.

He added: "I would be concerned about Bank of Ireland, which regards itself as private now and not State-owned. As you and I and everyone else knows we are carrying their liabilities.

"It seems that given what has happened this week, the ordinary people are not benefiting from the upside with the advent of these private investors that have come into play at Bank of Ireland."

Sunday Independent

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