Thursday 17 October 2019

Charlie Weston: 'Don't hold your breath waiting for further reductions down the line'


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Charlie Weston

Charlie Weston

Banks in this country have long been accused of fleecing mortgage holders with the highest interest rates in the eurozone.

This is the case despite cuts in rates by a number of players this year, especially the smaller banks such as Ulster, KBC and Permanent TSB.

A few months ago Ulster Bank challenged its rivals with a new 2.3pc two-year fixed rate. But the 'big two', AIB and Bank of Ireland, have been reluctant to reduce their variable rate costs.

It means that unless you are one of the lucky ones with a tracker, you are paying way more than a mortgage customer on the continent.

Central Bank figures show that the average variable rate for new loans is 3.08pc here, compared with 1.76pc across the eurozone.

The average first-time buyer mortgage is €220,000. This means a typical new buyer borrowing that amount over 30 years will pay €150 a month - €1,800 a year - more for their mortgage compared with the eurozone average.

The good news is that the European Central Bank yesterday left its key lending rate at zero, and repeated its commitment to keep it at the current level "at least through the summer of 2019".

As for the prospect of banks' mortgage rates coming down further, the message is that homeowners on variables should not hold their breath.

Yes, Fianna Fáil is to make a renewed effort to get its bill passed to give the Central Bank powers to control mortgage rates.

But the Central Bank has no interest, if you will excuse the pun, in controlling interest rates. The ECB is similarly unenthusiastic, while the Attorney General has warned that if such a bill was to be enacted it would be open to constitutional challenge.

Then there are new players set to come into the mortgage market, which may help shake it up. But the credit unions, along with specialist lenders Dilosk and Finance Ireland, have already said they are unlikely to undercut existing players. An Post has promised to be a price-buster, but the launch of its home-loan product is a year away.

That leaves the domestic players. Their reluctance to cut rates further is due to issues beyond their control.

Part of the reason mortgage rates are so high here is due to the fact that regulators require lenders to put aside more capital when they issue a mortgage than is required of lenders in other eurozone countries, a legacy of our banking collapse.

Combined with that, we have high levels of arrears and there is a reluctance by the courts to grant banks repossession orders, even when payments have not been made for a decade.

Of course, we do not want to see families turfed out of their homes, but that comes at a price in terms of high mortgage rates.

Irish Independent

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