Banks urged to cut a deal on fixed rate mortgages

PRESSURE is mounting on the banking sector to review its policy of charging customers thousands of euro to switch from fixed rate to variable mortgages, over claims the step is putting debt-ridden families under needless financial strain.

In recent weeks thousands of the country’s estimated 220,000 fixed rate holders, who have attempted to switch to variable mortgages, have been told any such move would be a breach of contract and could result in penalties of between e15,000 and e20,000 being passed on to the customer.

Fixed rate mortgages were considered to be the safest loan offer during the Celtic Tiger era as there was no risk the interest rate would rise during the contract. Since the financial downturn those with this mortgage type have been left with rates far higher than their variable counterparts.

Last April, fixed rate mortgages stood at an average of 5.25%.

However, since the financial downturn variable rates have collapsed to less than 3%, meaning fixed rate bank customers have been left with interest payments significantly higher than their variable counterparts.

In statements sent to Today FM, all of the major banking institutions in Ireland said the penalties were necessary as the money supplied to fixed rate customers is borrowed on a fixed basis for a set period by the bank from the international money markets.

As this money must be repaid regardless of the mortgage holder’s personal situation, AIB, Bank of Ireland, EBS, Permanent TSB, Ulster Bank and First Active statements said the institutions had no alternative but to pass the expense on to the customer if they decided to leave the set fixed rate contract as the bank would otherwise be left to pay off the debt itself.

However, calling for the policy to be scrapped in light of serious financial difficulties being felt by bank customers, the Consumers’ Association of Ireland and opposition politicians have called for the banking sector to introduce “some leeway” for customers struggling to cut back on their mortgage expenses.

“We acknowledge that contracts are contracts and that terms and conditions apply, but what we are saying is that these are trying times and the one people who have been helped during this period are the banks,” said association chief executive Dermott Jewell.

“Those penalties — that’s what they are — are very high, they are significant and they need to be acknowledged as such,” he said.

Last week, the Financial Regulator told an Oireachtas meeting that while the significant payments requested from bank customers switching to variable rate mortgages was a major issue for consumers, legislation would be needed if the expense is to be abolished.

Labour Party spokesman on housing Ciarán Lynch is expected to raise the matter in the Dáil next week during a debate to introduce the Finance Bill, which gives legal effect to the budget.

The Cork South Central TD said many mortgage holders were forced into fixed rates and not given an option by banks when they took out loans in recent years.

He is calling on banks to give these customers the option of switching to a variable rate “as a gesture of real recognition of the way the general public has underwritten financial institutions”.


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