Banks ‘fleecing’ variable mortgage customers: Hayes
Mr Hayes, who is now a member of the European Parliament’s ECON committee, said experience showed that variable interest rate mortgages were a huge risk to customers.
“Even though tracker mortgages have proved hugely beneficial to borrowers, they are no longer available to customers and of course, these mortgages continue to cause losses for mortgage providers,” he told the annual Banking and Payments Federation Ireland conference in Dublin.
“Mortgage holders on variable mortgages are being fleeced by the banks to make up for the losses on tracker mortgages. This is obviously unfair,” he said.
He said that, with long-term international interest rates at an all-time low, there was a clear opportunity for mortgage providers to borrow long-term and provide 10-year fixed interest mortgages at less than 3.5%.
“Making long-term fixed interest mortgages the norm would be good for mortgage holders, providing them with certainty as regards payments,” he said.
“It would also be in the long-term interest of mortgage providers to introduce a strong element of stability onto their balance sheets. Bank lending and crazy borrowing were central to Ireland’s economic and financial crisis. Heavy losses in commercial and residential property lending collapsed the Irish banking system and at one point endangered the entire euro system,” he said.
The former junior minister said during the bubble years many Irish mortgage providers were giving out 100%-plus mortgages.
“This of course was crazy and the Irish regulator failed to rein in the banks,” he said. “However, [the Central Bank proposal that mortgage borrowers provide] a 20% deposit requirement is going from one extreme to the other. I am particularly concerned about the impact it will have on first-time buyers in Dublin. It will act as a bar on new lending which needs to happen if the recovery is to be sustained. Remember the commitment of the pillar banks to hit their target of new lending on all fronts? It’s hard to see that happening if the 20% deposit rule is enforced.”
He said for people buying a second home or for people buying to let, a 20% deposit was “reasonable”.
“According to the September Housing Index CSO figures, the average cost of a home in Dublin is €349,000. A 20% deposit is €70,000. It is extremely difficult for a single person or a young couple to save that amount of money, particularly if they are already paying high rents. And as everyone knows there are also considerable transaction costs when buying a house.”
