Banks deny home loan switch profits

THE Irish Banking Federation (IBF) has denied suggestions that its members are profiting from mortgage holders switching to more affordable interest rates.

Chief executive of the IBF Pat Farrell said the Financial Regulator’s office is examining the formula banks use for charging borrowers who switch between types of mortgages.

This was the result of people with fixed-rate mortgages being charged hefty fees to move to variable rates and take advantage of the current low rates.

“Each bank has submitted its formula to the regulator and they are currently checking to see that they are not charging an iota more [than they should],” he said.

Mr Farrell outlined to the Oireachtas Committee on Social and Family Affairs yesterday, the formula he understood was applied by IBF member banks.

This takes the interest rate at the time the rate was fixed, gets the difference with the more favourable rate and multiplies this for every day it applied to.

Mr Farrell said when customers changed from fixed rates the lender was only allowed charge for the actual loss it incurred.

However, Labour deputy Roisín Shortall cited a case where a couple were charged €13,000 to move to a lower-cost variable rate two years before the fixed term expired. She said this was not justified in terms of the formula IBF outlined.

Mr Farrell said the IBF was only a trade representative organisation.

Fine Gael’s Kieran O’Donnell said banks needed to come clean on what it was actually costing to change the terms of loans.

Deputy Thomas Byrne, FF, asked for the amount of legal letters issued regarding mortgages in arrears rather than repossession – which did not indicate what was coming down the tracks.