Mortgage price cap ‘won’t deter competition’

New Central Bank figures showing falls in the average costs of mortgage rates have done little to silence calls for more aggressive cuts in home loan rates to eurozone levels.

Mortgage price cap ‘won’t deter competition’

And one of the country’s leading mortgage experts yesterday said the argument that setting controls over mortgage rates here would discourage new entrants moving into the market does not hold water.

Michael Dowling, chair of the mortgage committee at the Irish Brokers’ Association, said that despite the high margins, there were many reasons foreign banks were reluctant to set up new operations here, but that Central Bank controls was not one of them.

“I do not buy the argument,” Mr Dowling said, adding that price caps will not deter competition.

The issue of elevated rates Irish borrowers are paying for their home loan rates compared with borrowers elsewhere in the eurozone has flared over the past week.

Fianna Fáil and Sinn Féin have pledged to table legislation in the Dáil to empower the Central Bank to set new controls over home loans, while Independent Alliance deputies inside the government have also vowed to put the mortgage rates and mortgage arrears issue high up the political agenda.

The Central Bank has long said it does not want the powers, saying it believed setting price caps would only dissuade new entrants and not boost competition.

In its regular retail interest rates bulletin published yesterday, the Central Bank said that at the end of March the average so-called floating rate here for home loans was at 3.16%, down 7 basis points in the month.

It said that the equivalent rate stood at 1.89% in the eurozone. Those rates include variable rates and loans which are initially fixed up to one year, the Central Bank said.

Mr Dowling said the lowest variable rate in the Irish market this weekend following the cuts announced by lenders on Monday was 3.1%, which means that rates here remain 1 percentage point higher than the rest of the eurozone.

He said that other lenders were in no rush to cut their mortgage rates.

“In my opinion cuts in interest rates will be down to political pressure. I firmly believe that political pressure will win out in the day. It will not be banks cutting in the market,” he said.

Mr Dowling said he believed that the Central Bank should drop its opposition to taking on powers to set a cap — like other eurozone countries have done — over home loan rates.

Mr Dowling said that the relatively small size of the Irish market and the fact that UK and continental lenders had got burned in the past, as well as the weak regime of enforcement of security that banks here have over the principal family home are the dominant reasons dissuading new entrants.

He also said that the much-talked-about entry of a new rival into the market pledging to undercut existing lenders’ variable rates by half a percentage point would likely have to rethink its offering following the recent rate reductions by existing lenders.

Brendan Burgess of the Fair Mortgage Rates Campaign said lenders here charged borrowers far too much for loan-to-value of 50% of the property price even as the risk to the lender was close to zero.

Rates on the continent for those type of loans were much lower, Mr Burgess said.

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