Calls for mortgage cuts puts focus on bank funding

Mounting political pressure on mortgage lenders to cut their standard variable rates could impact funding costs at Permanent TSB more than many other banks, a leading banking analyst has said.

Calls for mortgage cuts puts focus on bank funding

Emer Lang at Davy Stockbrokers said the agreement between Fine Gael and Fianna Fáil in government formation talks to “take all the necessary action to tackle high variable interest rates”, showed pressure was again building on banks to cut their standard mortgage rates.

AIB — which is all but fully-owned by the State — responded robustly to pressure by Finance Minister Michael Noonan last year to implement cuts to its standard variable rate mortgages.

Almost all the lenders now promote ‘switcher’ offers to encourage borrowers onto fixed-rate mortgages, which campaigners have alleged lock in Irish borrowers to the highest home loan rates in the eurozone.

Brendan Burgess of the Fair Mortgage Rates Campaign — which lobbied politicians during the election — said yesterday that even AIB’s standard variable rate remains too high compared with the rates borrowers can tap elsewhere in the eurozone.

Mr Burgess said the Central Bank should prohibit lenders here from charging borrowers no more than three percentage points above the key ECB rate.

Lenders should argue their case to the Central Bank if they wish to breach the ceiling.

He said the argument that Irish people have to wait for new lenders to enter the market to lower rates shouldn’t be entertained.

However, Ms Lang said that the Central Bank has “consistently expressed its reluctance” to use powers to set ceilings on home loan interest rates.

“Increasing pressure on mortgage rates will in turn put added pressure on banks, in particular Permanent TSB, to lower their funding costs.

"In this respect, PTSB continues to pay 75 basis points for one-year money, compared with 25 basis points to 45 basis points at Bank of Ireland, and 30 basis points to 40 basis points at AIB,” she said.

Mr Burgess said the Fine Gael-Fianna Fáil agreement on mortgage costs was, however, light on detail. He said he wouldn’t be celebrating until “rates actually fell”.

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