Fianna Fáil Spokesperson on Finance Michael McGrath will introduce legislation in the Dáil today to comprehensively deal with the scandal of banks massively overcharging customers on standard variable mortgage rates.
The Private Members debate comes after the deadline for banks to provide meaningful reductions in monthly mortgage payments passed without any significant action on their part. Deputy McGrath has described the Central Bank (Variable Rate mortgages) Bill 2015 as the last chance for action on the issue prior to the General Election.
Deputy McGrath commented: “Fianna Fáil put the issue firmly on the agenda at the end of March with a motion on the subject of the rip-off variable rates being charged. Since then the banks have sought to deny the existence of a problem or fob customers off with minor changes to their rates, most recently with a number of banks announcing a reduction in their fixed rates.
“Reducing fixed rates is simply not an adequate response for SVR customers as it may not be suitable for large numbers of customers. For example Bank of Ireland will not allow existing customers to fix for a period of less than two years, this leaves customers in position where they may not be able to benefit from future rate reductions or lower rates from new market entrants. Mortgage holders who want to sell their home while on a fixed rate mortgage could end up having to pay a penalty for breaking the fixed term early.
“Our legislation is comprehensive and would apply to all entities providing, managing or administering mortgages. This is very important as it would bring in the 46,000 mortgages held by non-bank lenders including those that have been sold to vulture funds. The Central Bank would be required to carry out an assessment of the state of the mortgage market taking in to account factors such as the banks’ cost of funds, reasonable profit expectation, concentration within the market, the ease with which borrowers can switch mortgages between lenders and extent to which they are switching.
“Should the Central Bank conclude that a market failure exists the legislation would empower them with a range of tools to influence the standard variable rates charged, including directing a lender not to charge a rate which exceeds:
- A specified maximum rate;
- A margin above that lender’s cost of funds (as determined by the Central Bank);
- A margin above the ECB rate;
- A proportion, more than one-third, above the average variable interest rate charged in the market.
“This process would also have the distinct advantage of protecting customers of smaller lenders and those families whose loans are sold to vulture funds. Currently there is nothing to stop the buyers of these mortgages from increasing rates to 6 or 7% or even higher.
“The legislation also has an important “non-discrimination” clause. Certain banks are now engaged in a policy of making certain offers available only to new customers with one bank offering fixed rates to existing customers at 7.25% over 2 years or 8.75% for a 5 year fixed rate. By contrast a new customer can fix their rate for between 3.7% and 4.0% for two years or 3.95% for five years with the same institution. We would require banks to treat new and existing customers equally.”