Consumer watchdog criticises 'dysfunctional' mortgage market

A consumer watchdog report has found Ireland’s mortgage market is “dysfunctional” and in need of long-term actions to lower the cost of mortgages and to improve improve competition and customer protection.

The Competition and Consumer Protection Commission (CCPC) published its mortgages options paper, presenting the Government with a range of options the CCPC said will develop “a better-functioning, competitive and stable mortgage market”.

The paper was requested by the the then-Minister for Finance Michael Noonan last year as part of the Programme for a Partnership Government.

Isolde Goggin, chairwoman of the CCPC, said the scale of the mortgage market has far-reaching implications for the economy, society as a whole and millions of consumers in Ireland.

“Our analysis shows that this market is currently quite dysfunctional from both a competition and a consumer perspective,” she said. “The market we have is the legacy of the last 15 years of boom and bust and unfortunately there are no quick fixes to significantly increase levels of competition or consumer choice.”

The CCPC also warned that mortgage providers in the Irish market are competing on “auxiliary items” rather than rates, which “can have the ability to mislead consumers in their choices, and result in consumers drawing down on a mortgage product which may not be best suited to their needs or financial circumstances”.

The report was critical of cash-back offers.

“On one level this can be seen as proactive competitive behaviour by lenders to differentiate their product offering from those of competitors,” it said. “At another level, it could be argued they represent a sophisticated attempt to manipulate consumer behaviour.”

Ms Goggin said the response to the issues posed by the market will require a long-term vision.

“In our paper we have set out options to enable Ireland to start building a mortgage market which is more competitive, stable, and fit for purpose, but these need to be implemented in the context of this vision,” said Ms Goggin. “Otherwise, nothing will change.”

The ideas proposed in the option paper include the development of a national forum for the development of a long-term strategy, the introduction of measures that would make it easier for customers to switch mortgage providers, and government-led “business-friendly” initiatives that would attract new lenders into the highly concentrated Irish market.

While mortgage interest rates are lower in other European countries, the report found that comparisons “while informative, are of limited value when assessing competitive performance in the Irish market and the barriers faced by potential new entrants”.

It said low rates require large volumes of loans and Ireland would not have the same levels of scale as other countries.