Banks charging up to €44k for loan switch

BANKS are charging up to €44,000 for customers to move from more expensive fixed rate mortgages to cheaper variable rates, according to the Financial Regulator, who said they are not in a position to do anything about the costs.

Recent drops in interest rates have led to significant reductions in monthly payments for mortgage holders, except those who have fixed their rates for a number of years.

The Department of Finance and the Oireachtas Finance Committee asked the Regulator to examine if anything could be done to prevent banks from charging huge sums to customers wishing to get out of their fixed rate.

But the committee heard yesterday that this is not possible under the Consumer Credit Act of 1995 which exempts the Regulator from having a say in interest rates or any costs levied by a third party to institutions and passed on to customers.

“Lenders usually fund a fixed-rate mortgage through the wholesale market and as such it is deemed to be a third-party cost to the credit provider,” explained the head of the Regulator’s legal department, George Treacy.

He said the highest charge he had heard of so far involved a fee of 10% of the mortgage value. “The biggest number I have seen myself was €44,000. That was a mortgage of €410,000,” he said.

Kieran O’Donnell (Fine Gael) said “that’s crazy figures”. Mr Treacy replied: “Unfortunately we have very large mortgages out there, some of their terms aren’t very long and that’s what the figures will throw up.”

A number of committee members said the charges to move out of fixed rates were “outrageous” and suggested an amendment to the act so banks could be forced to stop the practice.

Sean Barrett (Fine Gael) said: “I think we, as a committee, should ask for an amendment to the Consumer Credit Act in relation to the requirement for taking out fixed-term mortgages.”

Mr O’Donnell said: “You have young couples out there at the moment who were not fully aware of the implications of going for fixed-rate mortgages, they are suffering severely over the last year and I think that is the role of the Financial Regulator.”

Frank Fahey (Fianna Fáil) said the Regulator should clamp down on subprime mortgage lenders.