Fitch backs variable rate plan

One of the leading global credit rating agencies has given a broad endorsement to plans that could see courts given the power to limit the rates banks charge standard variable rate mortgage customers.

Fitch backs variable rate plan

Fitch Ratings said that a reduction in borrowing costs would improve the affordability of mortgages and help customers meet repayments.

This could also improve the underlying performance of mortgage pools which make up securitised vehicles known as residential mortgage backed securities (RMBS).

Fitch yesterday indicated the potential introduction of legislation giving Irish courts the power to cap standard variable rates (SVRs) would not affect ratings of Irish RMBS — a positive endorsement of the proposal.

Consumer rights campaigner Brendan Burgess welcomed the report but added it was obvious to him the suggested legislation would have no adverse effect on RMBS.

“The reality of the situation is you can borrow money across Europe to buy houses for around 2%. So if our proposals that the banks were allowed to charge up to 3% above the ECB rate and after that they would have to get approval of the Central Bank if they wanted to charge more I can’t see how that would affect the security of mortgages. It should help people pay their mortgages which might be something of interest to [Fitch] if the rate was reduced.

“The other thing they said is if we stop the banks fleecing variable rate mortgage holders then the profitability of the banks will be reduced. We said that all along, we don’t believe the profitability of the banks should be based on 300,000 borrowers who have no opportunity of going anywhere else — they can shop around from one ridiculously overpriced mortgage to another,” he said.

Earlier this month, Fitch said empowering the courts to impose caps on SVRs could put “a strain on profitability” and “affect the standalone strength” of Bank of Ireland, AIB, and Ulster Bank. The report also found, however, that the higher cost of funding faced by banks is “comfortably passed onto consumers” and that their margins on retail mortgages, at about 3.5%, are well in excess of the EU average of 2%.

“Deposit rates across Europe are the same or higher in many cases than in Ireland and the mortgage rates are lower than in Ireland so the margins are much bigger here than anywhere else,” Mr Burgess said.

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