Monday 23 October 2017

Mortgage rate caps to be enacted in law by the summer

Finance Minister Michael Noonan
Finance Minister Michael Noonan
Charlie Weston

Charlie Weston

The much-promised law that will give the Central Bank the power to cap mortgage interest rates is likely to be enacted by the summer.

The bill has now cleared a big hurdle after legal advice received by the Oireachtas Committee scrutinising it has declared that it is no unconstitutional.

Finance Minister Michael Noonan had questioned the constitutionality of the provisions of the bill.

He raised fears the bill would interfere with property rights.

The bill is currently going through pre-legislation scrutiny by an Oireachtas Committee because of the fears it could contravene the Constitution.

But committee member Michael McGrath of Fianna Fáil, who prompted the bill, said lengthy legal advice has been received by the committee dismissing these fears.

"It is a lengthy piece of legal advice, but it pretty much gives the legislation a clean bill of health.

"This means the Central Bank (Variable Rate Mortgages) Bill has cleared one of its big hurdles.

Objections to the mortgage rate cap law have also come from the European Central Bank, despite the fact that such caps are common across Europe.

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ECB president Mario Draghi claimed the bill would damage the credibility of the Central Bank and the ECB. Mr Draghi claimed new lenders would be less likely to enter this market if their is a mortgage rate cap in place.

Variable mortgage rates here are almost twice those charged in the rest of the eurozone.


This means a typical borrower in this country is paying €200 a month more than someone in Germany or France for a €300,000 mortgage.

And fixed rates here are a multiple of those charged by banks in the rest of the Eurozone, and also tend to be for shorter period.

The Central Bank does not see as its role the assessing of rates to find out what would an appropriate variable rate.

Mr McGrath said he is considering an amendment to the bill that would see an appropriate rate, or a cap, set out in the legislation, as a way of dealing with the Central Bank's objections to the bill.

There have been cuts to variable rates in the last two years.

Mr Noonan has repeatedly pleaded with banks to cut their rates, with only partial success.

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But Bank of Ireland boss Richie Boucher said recently he was deliberately keeping variable rates high to encourage mortgage customers to fix.

Brendan Burgess of the Fair Mortgage Rates campaign said he supports the idea of putting a cap in the legislation.

"The Central Bank don't want a role in it, and they have been no friends of mortgage holders on this issue - as they have prioritised the profitability of the lenders over the fair treatment of mortgage holders. So they should be sidelined."

He said a cap of 2.5pc over the European Central Bank rate for those with at least 20pc equity in their homes would be appropriate.

For those with equity of less than 20pc a cap of 3pc over the ECB rate would work, he said.

The average interest rate on new mortgages here remains almost twice what it is in the Eurozone. The rate stood at 3.38pc in November. Although this has fallen over the past 12 months, it is much higher than the euro area rate of 1.72pc, according to data last week from the Central Bank.

Irish Independent

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