Two years ago, when we launched the Fair Mortgage Rates Campaign, Irish borrowers were paying 4.5% compared to an average Eurozone rate of 2.64% — a difference of 1.86%.
Since then, the average rate for new business in Ireland has dropped to 3.56% while the average Eurozone rate has fallen to 1.81%.
So the gap has remained pretty much the same. Today Irish borrowers are still paying 1.75% more than the average rate paid by borrowers in other Eurozone countries.
There have been some improvements over the two years.
A major objective of the campaign was and continues to be that existing customers would be able to avail of rates on offer to new customers.
Ulster Bank and AIB now do this which has resulted in good reductions for existing customers who could not switch.
Permanent TSB charges the same rate for new and existing customers, but they give new customers 2% cash back which allows them keep their rates artificially high.
KBC and Bank of Ireland continue to charge existing customers much higher rates than they charge new customers and it seems that the Central Bank is not prepared to do anything about this.
The Minister for Finance has a huge conflict of interest as he wants to maximise profits to maximise the value of the banks he owns.
The recent big falls in the banks’ share prices as a result of the Brexit vote will make the minister even less enthusiastic to do anything which threatens the banks’ inflated profits.
The Central Bank is also hugely conflicted. Its primary concern is the capital position of the banks.
As long as the banks are profitable, the Central Bank doesn’t care whether or not it’s fair.
To pretend that they care, they have recently changed the Consumer Protection Code so that lenders are now obliged to tell borrowers how they calculate the mortgage rate.
What absolute nonsense! All this does is impose additional regulatory costs on the banks — costs which will be passed on the borrowers.
There are a few potential developments which might bring down mortgage rates. It has been reported that a new lender, Frank Mortgages, has applied to the Central Bank for authorisation to provide mortgages at rates of 2.75%.
Regrettably, the only way to drive down mortgage rates is for the Oireachtas to pass Fianna Fáil’s bill to give the Central Bank the power to control mortgage rates when they judge that the market is dysfunctional.
The Central Bank has said that it does not want the powers to control rates but it’s not up to the Central Bank to make laws. There is a serious possibility that when the legislation is passed, the Central Bank will pay only lip service to it.
If that happens, then the Oireachtas will be forced to bring in a limit on mortgage rates in the legislation itself. For example, a ceiling of 3% above the ECB rate.
Ideologically, I am opposed to such interference in the free market but such legislation may be the last resort.
While we are waiting for this legislation to be implemented, is there anything ordinary mortgage holders can do?
With increases in property prices, most mortgage holders today have loans which are less than 80% of the value of their property. If you are paying 4.5% to Bank of Ireland or 4.25% to KBC, you have only yourself to blame.
You can get much better rates from one of the other lenders. In fact, EBS will not only give you a much lower rate, but they will also pay you 2% cash back.
As there is no claw back with this offer, you can switch again from EBS if they don’t keep their rates competitive.
Brendan Burgess is the founder of the Fair Mortgage Rates Campaign.
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