Joan Burton: Cabinet may act to lower mortgage rates

Tánaiste Joan Burton has warned banks who refused to lower variable mortgage rates that they will be targeted by Government in the next budget.

“I’ve been listening to some of the testimony by the bankers and others [at the banking inquiry], and loss of memory and slight amnesia seems to be a feature,” said the Labour leader.

“Have they quite forgotten the level of support that was given to them by people in Ireland in terms of the bailout?

“They would be extremely wise to consider their corporate responsibility in relation to people on variable rate mortgages.

“If the banks simply can’t recognise they have some obligation to people in Ireland in the context of the bailout that they’ve enjoyed, there are other avenues to address this.”

However, the governor of the Central Bank has contradicted Government claims that it can force banks to cut variable interest rates, saying he knew of “no successful economy” that tries to enforce such regulations.

Patrick Honohan said such a move could choke off competition in a sector that needs to get the overall regime right.

Speaking at the launch of the Central Bank’s 2014 annual report, dominated by news of his impending retirement, Prof Honohan insisted that politicians imposing variable rate cuts could cause unintended problems.

Warning that such an approach could drive away potential competitors, he said: “I don’t know of any successful economy these days that attempts” to introduce such measures.

Prof Honohan accepted that the variable rates crisis was an issue, stressing that Central Bank research on the prices, competition, and characteristics of the loans and borrowers in the dispute will be published soon.

However, he said forcing banks to reduce their rates could “choke off” competition, adding that the sector did not need “somebody poking around” without looking at the overall picture.

He further noted that the Department of Finance “doesn’t own all the banks” and was only a moderate shareholder in others.

Underlying his position, he said: “We’re all in a space of wanting the banks to be successful and get out of [State] ownership.”

The rates controversy follows AIB’s decision to cut its variable interest rate by 0.25%, with AIB Group members EBS and Haven cutting rates by 0.38%.

The move will take effect before June and will benefit 160,000 customers, putting further pressure on other main banks to follow suit. However, the proposed moves by AIB will save mortgage holders on average about €40 a month.

Meanwhile, the annual report shows the exchequer is set to enjoy a €1.7bn windfall after the Central Bank recorded unprecedented profitability last year.

Profits hit a record €2.1bn in 2014 due to improving economic conditions and the sale of IBRC-liquidation related bonds, handing the Government hundreds of million of euro extra ahead of the budget.

Prof Honohan said his retirement in November was a show of faith that the economy, while still fragile, was now out of the crisis management phase.

He said the €1.2bn-1.5bn spring statement giveaway by Government may provide better “structure” for general election promises.

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