Sunday 19 January 2020

Banks must give, not just take

IRISH taxpayers, especially if they are also mortgage holders, have to wonder if all dealings between ordinary citizens and financial institutions must always consist of one-way traffic, a system in which the taxpayers and mortgage holders give and the banks take.

Permanent TSB, Bank of Ireland and KBC Homeloans charge higher fixed rates to existing customers than new customers.

A new customer has the option of a fixed-rate mortgage for five years at 3.7pc. An existing customer who wishes to access the five-year rate has to pay 5.75pc. The difference in repayments on a €250,000 mortgage over 30 years would come to €293 a month.

To make matters even more galling, the "Permo" recently increased its standard variable rate by 0.5pc. Other institutions are expected to follow suit. They will presumably include institutions which have been kept alive through the financial crisis courtesy of the taxpayers.

Politicians and economists have offered those suffering from the credit crunch the cold comfort that the crisis has meant lower prices. It has certainly not meant lower mortgage costs. Indeed, there is a danger of much more substantial interest rate rises, which could contribute to throwing thousands of people into default on their loans.

Politicians and economists ought to have more respect for the intelligence of customers.

A spokeswoman for the Bank of Ireland has said that it offers lower rates to new customers to help them with the additional costs they incur when they buy a house. Perhaps she forgot that not very long ago these "additional costs" figured in a very different context, when banks offered 110pc or even 120pc mortgages which paid for the furniture, the wedding and even the honeymoon.

In the new era of austerity, those goodies have vanished, like so many banking billions, into thin air. Now, the Professional Insurance Brokers' Association says that lenders turn down between 60pc and 80pc of mortgage applications. First-time buyers have particular difficulty in getting loans.

So the lenders have turned from "irrational exuberance" to a more familiar fault, excessive caution. In the meantime, they have little or nothing to say about another question of great concern.

The total amount of money on loan to mortgage holders is roughly €150bn. Estimates of how much of that could be lost in defaults range from 3pc to a colossal 10pc. If the worst happens, who will pay, the bankers or the taxpayers?

Irish Independent

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