Brendan Burgess: What the new Finance Minister must do to help mortgage holders

The Central Bank has washed its hands of many mortgage holders. The new Minister for Finance must now step into the breach.

Before the current coalition came into power, Michael McGrath was the main opposition spokesman on finance and he campaigned successfully to highlight the very high mortgage rates in Ireland. 

He proposed measures to boost competition among lenders, including banning lenders from discriminating between new and existing customers. Now, that he has his hands on the steering wheel as Minister for Finance, it is time for him to implement major changes. 

Reform of the mortgage market is even more urgent with the recent hikes in mortgage rates, as the monthly mortgage payments have become a much bigger part of the family budget. 

A 3% increase in rates on an average €200,000 mortgage will cost an extra €80,000 in interest over the 20-year life of a typical mortgage. When you add this to the increased financial pressure families are facing with inflation, it is likely that we are going to see a big spike in mortgage arrears for many. 

Some banks keep their mortgage rates much higher than competitors but attract new customers by giving them cashback incentives. 

Most borrowers do not appreciate that their repayments over the life of the mortgage will be far higher than if they got their mortgage from a lender who charges new and existing customers the same rate. The result of this trickery is that many existing customers of Irish banks are paying rates as high as 4.5%.

Discrimination against existing customers takes many forms. Permanent TSB in the past used to attract new customers with fixed rates which were much lower than their variable rates, but didn't allow existing customers to fix their rates. It has stopped doing that. 

Even today, Bank of Ireland offers new customers a discount if their home has a good energy rating, but existing customers can’t avail of it. The Central Bank recently introduced measures to ban price differentiation between new and existing customers of insurance companies. 

But, for some reason, it tolerates discrimination by mortgage lenders. Yet such a ban is much more urgently required by mortgage customers as mortgage payments make up a much higher proportion of a family’s budget than insurance premia.

The Central Bank interprets its role in protecting consumers as telling the lender to be transparent in the rate it charges on mortgages. It believes that a consumer armed with this information can make an informed choice and switch to a different lender if the rate charged by their existing lender is too high. 

But the vast majority of customers don’t switch because they are unable to properly evaluate different mortgage options and because switching is a time-consuming and expensive process. 

Furthermore, many customers can’t switch because they have had payment difficulties in the past or because their personal circumstances have changed since they drew down their mortgage. These borrowers are prisoners of their current lender and the Central Bank has washed their hands of them.

Given the failure of the Central Bank to fulfil its mandate to protect consumers, it is now time for the new Minister for Finance to introduce legislation to stop the banks exploiting them. 

I am arguing for a ban on cashback mortgages and for banning discrimination between new and existing customers: Force the lenders to compete on mortgage rates and mortgage rates alone. However, these protections will do nothing to protect the 100,000 borrowers whose mortgages have been sold to vulture funds. 

Given the failure of the Central Bank to fulfil its mandate to protect consumers, it is now time for the new Minister for Finance Michael McGrath to introduce legislation to stop the banks exploiting them. 

They were reassured at the time by the Government and by the Central Bank that their rights would be fully protected. But the vulture funds have hiked up rates far more aggressively than the lenders who sold the mortgages.  

For example, many customers whose mortgages were sold to vulture funds are now paying rates as high as 6.5%, way above fixed rates of around 3.25%. That does not chime with the messages from the Government and the Central Bank. 

The Central Bank has washed its hands. The new Minister for Finance must now step into the breach.

• Brendan Burgess is a consumer advocate and founder of the consumer forum Askaboutmoney.com