The Government faces a political headache over the sky-high rates that banks are charging their standard variable mortgage customers, but its solution is unlikely to mark the end of the controversy.
The harsh facts are that the banks were rescued at huge costs by Irish taxpayers. And the best brains in the troika failed to crack the code of the Irish mortgage books.
How do you make lenders profitable when €60bn worth of their tracker mortgage loans, or just over half of all €115bn in home loans, make little or no money?
The conundrum remains unsolved. Inevitably, some 300,000 borrowers on variable rates as high as 4.5% are heavily subsidising the lucky 400,000 households on tracker rates as low as 0.5%.
Michael Noonan, the finance minister, yesterday said the banks had agreed to cut their mortgage rates. It would consider introducing “a penal banking levy” or give the Central Bank new powers to regulate interest rates if the banks fail to cut variable rates in the coming months.
The Government indicated it expects the banks, by July, to have shown their hand on ways to lower rates or offer “competitive fixed rate products” of around 3.75%.
Experts say the Government’s firm line and banks’ apparent acquiescence may not be all they seem.
Michael Dowling, a leading mortgage analyst, said he is sceptical that customers will benefit from significantly lower interest rates. He said it will likely still be up to customers to do substantial work to switch banks before they can benefit from any new lower rates.
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