Scope for banks to cut mortgages ‘diminishing’

Lenders have probably the room to cut mortgage costs by up to a quarter of a percentage point over the next three months but their scope for major cuts later next year is probably diminishing, a senior analyst has said.

Owen Callan, analyst at Investec Ireland, said that political pressure could likely build on Bank of Ireland, and to a lesser extent on Permanent TSB – PTSB, to review their standard variable rates because those banks have focused on promoting their reductions in fixed-rate home loans.

His comments come after KBC Bank confirmed yesterday it had lowered most of its variable and fixed-home loan rates, reducing its 80% to 90% loan-to-value variable rate mortgage by 0.15% to a rate of 3.5%.

The bank also cut the cost of a one-year fixed rate to 2.9% for borrowers on a mortgage with a loan-to-value rate of less than 90% from 3.3% previously.

“We would probably look for 25 basis points (cut) across the board across different products in mortgage interest rates in the early new year,” Mr Callan said.

“The big question is whether Bank of Ireland and, PTSB to a certain extent, maintain their standard variable rate at existing rates. They have so far refused to cut those rates. That is where the focus will be,” he said.

Michael McGrath, Fianna Fáil finance spokesperson, urged other lenders to follow the example of KBC in cutting mortgage rates for both new and existing borrowers.

In May, Fianna Fáil had sponsored its ‘Central Bank Variable Rate Mortgages Bill’ in the Oireachtas that would allow the Central Bank for the first time to cap the levels of variable rates that lenders can charge borrowers.

Mr McGrath described the KBC reductions “a key breakthrough” because they apply to new customers and existing borrowers alike.

“The different treatment of existing and new customers by some banks in terms of mortgage rates is blatant discrimination and should not be tolerated by the Central Bank,” he said.

Consumer advocates have long pointed to evidence from the ECB’s own surveys that many Irish homeowners, including new mortgage borrowers and existing borrowers, are charged rates that are the most expensive in the eurozone.

Advocates have said that the banks are charging the high rates to bolster their profitability and capital reserves as they struggle with the legacy of arrears and non-performing loans on their loan books from the financial crash.

A presentation for investors in Irish Government bonds by the National Treasury Management Agency — the NTMA — which was published on its website last week said Irish banks were rebuilding profits aided by home loan rates that are the highest in the eurozone.

Rates charged for Irish SME loans are also significantly higher than the eurozone average, according to the presentation. The presentation said the Central Bank mortgage rules were helping build “resilience”.

It said home loan arrears had improved markedly but were still a “challenging environment”.

Irish bank stocks have reflected the huge shocks that have battered the European stocks this year, analysts say.

Fears over German and Italian banks have led to Deutsche Bank shares plunging 41% since the start of the year. Irish banks stocks have also faced a myriad of other concerns, including the Brexit fallout.