Competition the best way to stop banks fleecing consumers

Making a quick buck might seem fine now, but the fleecing of Irish mortgage holders will eventually put the overall banking sector and the wider economy at risk, argues Billy Kelleher.

You're in your early 30s. You’ve finally scraped together the deposit, and you’re on the way to owning your own home.

Now imagine how you’d feel when you’re told that you’ll need to pay twice the amount a buyer in France has to pay in interest.

Well that’s happening day-in, day-out in this country, and it needs to stop. Irish consumers, when it comes to mortgages, are being fleeced. It’s simply down to a lack of competition in the Irish market, and it cannot continue any longer.

Competition — yawn! That’s how most people react, but competition is essential to a functioning economy.

As my party’s spokesperson on business, it’s my job to call out unfair practices and to provide solutions.

Interest rates, while not very sexy politically, are of massive importance to consumers and the wider economy.

Nine — that’s the total number of banks or financial companies that offer mortgages here to would-be home- owners. Is it any wonder that Irish mortgage customers pay some of the highest interest rates in Europe?

Last May, the average interest rate on all new Irish mortgages was a whopping 3.23%, with the equivalent rate for the eurozone area at just 1.78%. Ireland, alarmingly, is the only eurozone country with an average rate above 3%.

The result is less money in the pockets of Irish families, less saving for a rainy day, less investment in pensions and less investment in their children’s futures.

Fundamentally, the Irish banking sector is, for all intents and purposes, gouging on consumers to maximise its profits.

Let’s put it in terms we can all understand. Take a €250,000 mortgage loan, spread over 30 years. Based on the average eurozone rate, the cost of credit would be €72,843, whereas in Ireland, it would be €140,698 — that’s a staggering €67,855 difference or €2,261 per year. Imagine what you or your family could do with extra cash like this in your pockets every year.

It’s already incredibly difficult to save the deposit to get a mortgage. It’s taking young people and couples longer and longer to scrape it together.

This extra financial cost to taking out a mortgage is not acceptable.

While the banks get richer, families are losing out. Anyone who knows me knows I’m not one for bashing the banks or big business. Railing against big business isn’t, and has never been, part of my political platform, but at times, it needs to be called out for what it is.

Banks here are failing consumers.

In the long run, they are failing themselves. Making a quick buck now might seem fine, but banks gouging on their customers will eventually risk the overall banking sector and wider economy.

What needs to be highlighted is that some of the highest interest rates are being charged by banks backed up by the State and taxpayers. This is very unfair given the level of support the Irish taxpayer gave to them over the past 10 years.

When banks try and make a quick buck off consumers, they are risking the very economic prosperity that they require to survive.

In the past number of years, many banks have attempted to use seemingly attractive sleight-of-hand tactics to distract from their interest rates.

Cash-back offers are bad for consumers and are being used by banks to keep interest rates high.

All too often, Irish banks seem to land on their feet. It’s all well and good offering customers 2% cash back when you know you are making many multiples of that in interest charges.

Competition is the best way of ensuring a level playing field for Irish consumers. More banks competing for custom keeps rates down and ensures that customers get the best possible deal. Markets, irrespective of the type, work best for consumers when there is competition.

An Post’s announcement that it wants to enter the mortgage market in 2019 is very welcome, but even more competition is required

The elephant in the room is the credit union movement — why has it not been allowed to enter the mortgage market yet?

Longer term, the establishment of a European Mortgage Market is critical to levelling the playing field and ensuring that Irish consumers stop getting fleeced by Irish banks.

Why can’t consumers secure their mortgage off a provider in the UK, France, or Germany? The completion of the European Single Market to include mortgages is absolutely necessary for Irish consumers. Fianna Fáil will work with its colleagues across Europe to deliver a mortgage market that is both fair and competitive. We’ll pressure the Irish Government to raise it at European Council level.

Leaving it as it is takes money out of all our pockets and that just isn’t on.

Billy Kelleher is Fianna Fáil spokesperson on Jobs, Enterprise, and Innovation