I commend Deputy Michael McGrath for tabling this motion and thank him for the great activity he has carried out on variable rate mortgages. What he said yesterday about a customer on a €200,000 20-year mortgage paying up to €1,000 a year more than the offer available to a new customer is worth repeating. Such a customer would pay €6,000 more than a family on a tracker mortgage of the same amount. Those figures show how unfair the situation is.
The excessive variable mortgage interest rates charged by banks should be investigated by the Competition and Consumer Protection Commission, because we know that the data available show that the interest on the average standard variable rate mortgage in Ireland is 4.6%, which is well above the 0.05% rate charged by the European Central Bank. Mr. Brian Hayes, MEP, has said we can say with certainty that Irish house buyers are being ripped off by banks, particularly when one considers that the eurozone average variable mortgage rate is 2.45%.
It is a great shame that high interest rates are paid by customers to keep the banks profitable, a matter raised by Deputy Donnelly today on Leaders’ Questions. He stated that bank profits on individual restructured mortgages, including those where banks are seeking possession, should be capped at the expected level under normal payment of the mortgages. The issue has been raised on Leaders’ Questions time and again and I hope the Central Bank will investigate and publish the true average variable rate in Ireland.
We need a thorough investigation into the argument that the current standard variable rates do no reflect market conditions. We should examine other European countries, particularly the low-interest-rate environment that exists in many eurozone countries. In Ireland, banks are still offering variable rates of over 4%. Excuses have been given in respect of Ireland’s home loan rates, which are more expensive than in other European Union countries, with reference to the higher cost of funding and the effects of tracker mortgages. I do not think we can buy that.
We need a radical change in the current Irish mortgage system. I hope that will happen. There was a time when banks would pass on the ECB rate cuts to all mortgage customers, including those on variable rates as well as trackers, but that is not now happening. Instead, the banks are putting the squeeze on variable rate customers. Variable rate mortgage holders are now on interest rates that are three times those being paid by tracker mortgage borrowers. AIB and Bank of Ireland charge their customers a 4.5% interest rate compared to the 1% to 1.5% rate paid by tracker borrowers.
We also know that anyone with savings has seen banks slash interest rates on deposits. There is a 2% difference in what most banks receive in interest on all of their loans and what they pay in interest on all deposits. It is now time this was dealt with. Central Bank statistics show that almost 240,000 mortgages were restructured by the end of 2013. The Simon Community has raised this issue in regard to homelessness, given the fact that 37,000 households are in mortgage arrears of two years or more.
I refer to returning emigrants trying to get mortgages. It is always said that they are very welcome to come home, but they have told me that one needs to go through hoops to get a mortgage and save a lot more. One can expect to pay interest on a mortgage at similar rates to Irish buy-to-let investors, something which is true of Permanent TSB and AIB. One such person was featured in The Irish Times. He had worked in the UK for 15 years and returned to Dublin in order to commute to the UK. He was told by one bank that he would need a 40% deposit – that is, €50,000 – to buy a home worth €350,000. A constituent in East Galway returned after seven years, having made a bit of money. He had a €50,000 deposit for a modest house worth €140,000. He was told he would need 50% of the price of the house because he was not an Irish resident. These are the kind of obstacles that are in the way of people. There is no flexibility, and I call on the Government to show some. People, particularly those returning home, want to plan for the future, but they will not do so while the banks are inflexible and the Government is not taking action.