Fianna Fáil Finance spokesperson Michael McGrath has called for direct engagement by the Central Bank with mortgage providers to secure a reduction in the standard variable rate charged to existing customers.
Deputy McGrath commented: “I have conducted an analysis of the interest rates that are charged to existing customers on tracker rates, standard variable rates (SVRs) and those that are available to new customers. It is clear that there is a wide and growing disparity with existing customers on SVRs very much at the bottom of the pile.
“Danske Bank, which has effectively left the market, is charging the highest rate on variable mortgages at 4.95%. However, even amongst those lenders who are still active in the market, rates of up to 4.5% are charged by Bank of Ireland and KBC. By contrast KBC offers a rate as low as 3.69% for new customers with 20% equity in their home. For a customer with a €200,000 balance outstanding over 25 years, the difference between 4.5% and 3.69% is an additional € 25,892 in interest over the lifetime of the mortgage.
“While the impact of reduced ECB rates has helped many households cope with the squeeze on family finances, the benefit has largely been limited to those on tracker mortgages. Customers on variable rate mortgages have seen a far smaller reduction in their monthly repayment. The average difference between tracker mortgages and a comparable SVR product is now over 3%. Recent reductions in variable interest rates were, at first glance, an overdue injection of some competition in to the stagnant Irish mortgage market. However, the vast majority of customers do not benefit as the rates are typically only available to new customers.
“Last year Governor Honohan implicitly accepted that mortgage rates for existing variable rate customers were going in the wrong direction in the context of record low ECB rates stating “It is reasonable to ask whether, having under-priced lending so badly in the early years of the millennium, they could end up over-pricing it now. Ireland is not the only country to have been experiencing widening spreads.”
“Banks should now make it clear that these new lower rates will be available, not just to first time buyers, but also to potential new customers wishing to switch their mortgage from another bank. At Oireachtas Finance Committee hearings with senior bank executives, we were told that the actual level of switcher mortgages was minimal with both Bank of Ireland and permanent tsb saying they represented only a tiny fraction of overall mortgage activity. Failure to make switcher mortgages available on a widespread basis will only further fuel the view that the banks are more interested in optics than in providing a genuinely competitive mortgage market.
“In the UK banks are required to operate under the “Treating Customers Fairly charter”. In fact, they have been warned by the Director of the UK Financial Conduct Authority as to their actions in relation to SVR customers. We need a similar charter here and direct engagement by the Central Bank to demonstrate to banks that their current policy is discriminatory and must change. A peer review of the Irish Central Bank published this week indicated that the Central Bank needed to do more to protect the interests of consumers. A good start would be to immediately bring in the banks and tell them in no uncertain terms that they need to change course in how they treat the hundreds of thousands of customers who remain on standard variable rate contracts.”