Fianna Fáil Finance spokesperson Michael McGrath has stated that mortgage holders on a standard variable interest rate must also benefit from today’s ECB interest rate cut.
The ECB announced a reduction in its base rate today from 0.25% to 0.15%. This will be automatically passed on to tracker mortgage customers.
Deputy McGrath stated, “Today’s decision by the ECB is further good news for mortgage customers on a tracker interest rate. However, recent ECB rate reductions have not been passed on to variable rate customers. This has resulted in a growing divergence between the mortgage repayments of a tracker customer and a variable rate customer.
“For example, following today’s decision by the ECB, a borrower with a mortgage of balance of €200,000 over 20 years on a tracker rate of ECB + 1% will now have a monthly repayment of €932. By contrast a variable rate customer who owes the same amount also over 20 years, and who is typically paying 4.5% interest, will still have a monthly repayment of €1,255. This is a staggering €323 a month more than the person with the tracker mortgage. If the difference was maintained over the remaining lifetime of the mortgage it would amount to a massive €77,492 in additional interest.
“The banks are losing money on their tracker mortgages and there is a very strong case for European action to assist the banks in this regard and secure their future viability. There is absolutely no justification for banks gouging their variable rate customers to make up for previous bad decisions that the banks made. The gap between a typical tracker mortgage and a comparable variable rate product is now over 3% and could go close to 4% if the banks continue on their current path.
“The Minister has been reluctant to intervene to date stating that the setting of interest rates is an operational matter for the banks. If we were operating in a normal competitive market, customers would be able to move their mortgage to another provider, but the market for mortgage switching is effectively closed. The Minister and the Central Bank have a duty of care to protect consumers. In the context of a dysfunctional banking market there is a clear need for action to help customers who have made take a disproportionate share of the burden of banks’ attempts to return to profitability.
“We know from today’s Central Bank data on mortgage arrears that we continue to have a major problem. The rate of long term arrears is at a crisis level. We know from Central Bank research that there is a correlation between higher interest rates and the level of arrears. By failing to tackle the spiralling gap between tracker and SVR rates, we are risking a further deterioration in the arrears crisis.”