Elderfield warns banks over hikes in interest rates

THE Financial Regulator has told the banks he wants to halt variable interest rate hikes and warned them he will be “breathing down their necks” to ensure compliance with his mortgage arrears code.

Matthew Elderfield said that while banks may be hiking interest rates to make up for money lost on non-profitable tracker mortgages, such moves may be “self defeating” as they could push more customers into arrears on their mortgage payments.

Up to 200,000 Irish homeowners have standard variable rate mortgages and some have seen the interest on their mortgage repayments increase to as high a rate as 6%.

He admitted that “the awkward truth is that it is likely that repossessions will increase over time” but banks should strive to minimise these. Such repossessions would likely be faced by homeowners with “unsustainable debt”.

Speaking at UCC, Mr Elderfield said that while the Central Bank doesn’t have the power to set interest rates, it does as a shareholder in many Irish banks have “the opportunity to influence management actions”.

“If the banks continue to act in a way which is so damaging to customers and which appears to take advantage of the current dysfunctional competitive environment, it seems they are courting the risk of a public policy response involving powers to impose direct restrictions on their rate setting capacity,” he said.

“We have decided to require any bank that has received government capital support to provide an impact analysis of any proposed standard variable rate increase,” he said.

Earlier this week, Mr Elderfield met with AIB, Bank of Ireland, EBS, Permanent TSB, Ulster Bank and KBC to outline his views.

Mr Elderfield warned the banks to examine “very carefully” their compliance with the Central Bank’s mortgage arrears code.

“It is clear too from information we are receiving from consumers and other sources that the practice so far has been mixed. This is now a major focus of our supervisory effort. Frankly, we intend to be breathing down the necks of the banks to make sure they are coming up to the mark.” he said.

Mr Elderfield re-iterated that there is “no silver bullet solution to the mortgage arrears problem” but warned that legislation cannot incentivise ceasing mortgage repayments.

“The most important public policy area that needs to be settled relates to bankruptcy law reform. There appears to be common agreement on the need to reform bankruptcy law, and, to introduce a non-judicial statutory debt settlement mechanism. It is essential that progress is made to deliver this and that the work in this area is properly resourced,” he said.

Mr Elderfield is to write to the Chairmen of the banks to underline how their Boards must “take personal responsibility” for approving and monitoring implementation of these strategies.