Banks are right to charge interest on mortgages with Covid payment breaks

[Brendan Burgess]

I have an opinion piece in today's Irish Times

Banks are right to charge interest on mortgages with Covid payment breaks

Opinion: Government should focus on mortgage rates as Irish borrowers pay €300 more a month than the rest of the euro zone

www.irishtimes.com

Every day, up and down the country, borrowers reschedule their mortgages. This happened before the pandemic. It’s happening during the pandemic. And it will happen again long after the pandemic has faded into history. The term of , say, 25 years set at the start of a mortgage is not set in stone. Many borrowers, whose financial circumstances allow, later increase their repayments and so shorten the term of the loan and save themselves interest. Others suffer a financial set back and negotiate an extension of the original term to reduce their monthly repayments. Still others are granted payment breaks or periods of interest-only.

...

The banks have handled this very badly. The first announcements were confusing and did indeed give the impression that they were not charging interest. Had they made this clear from the very start, the issue would not have arisen.

Sometimes I wonder if the banks do these things deliberately. They divert the Government and opposition down a non-issue rabbit hole. This takes the focus away from where it should be – the many real issues for which we should be criticising the lenders. And the biggest issue of all is the very high mortgage rates in Ireland.

Irish mortgage holders, who don’t have trackers, are paying twice the average mortgage rate charged in other eurozone countries. A typical Irish borrower is paying about €300 more per month than they would be paying in the rest of the eurozone.

The government should be putting relentless pressure on the banks to bring down mortgage rates. The government should bring in legislation to ban cash back and other tricks which confuse the customer and result in them paying higher rates

 

[Duke of Marmalade]

Good stuff, Boss, though the dark conspiracy theory about diversion from high rates might be a tad OTT.
However, the analogy with other retail situations does throw up a nuance. Let's say a shopkeeper allowed a customer credit during the pandemic and then sought to charge them for that credit. well that would be a bit of a scandal. That is what the banks are doing, implicitly, I think. To be comparable they should not be charging any more interest than if the repayments had continued.

 

[Purple]

Sometimes I wonder if the banks do these things deliberately. They divert the Government and opposition down a non-issue rabbit hole. This takes the focus away from where it should be – the many real issues for which we should be criticising the lenders.

I think that would require a level of planning, cohesiveness and competence beyond anything which any Bank has demonstrated in my lifetime.
They may have delusions of adequacy but when it occurs it is merely a happy accident.

I do agree with your point though; they should be charging interest and should have said so clearly from the start.

 

[Brendan Burgess]

Sometimes I wonder if the banks do these things deliberately.

This was intended to be rhetorical. I always assume incompetence before a conspiracy.

But the whole tracker scandal has taken the focus off the much bigger high mortgage rates scandal.

Brendan

 

[Sunny]

Utility companies give payments during this crisis. Not charging interest
Irish Water. No interest
County Councils are deferring rates. No interest
Revenue warehousing tax liability. No interest
Insurance companies extended free cover business insurance around renewal time and have payment plans. No interest.

The taxpayer is paying billions in social welfare through the Covid unemployment payment and the Wage Subsidy scheme to try and offset the economic impact from the virus. Who benefits from not entering a full blown recession? Banks. We have 80% Government backed SME loans that banks still get to charge commercial lending rates on even though they are only taking 20% risk. We have the ECB throwing billions and billions of free money at banks to the extent that if you tried to offer an Irish bank money at the moment, they wouldn't even give you a meeting. We have regulators giving banks permission to park interest payments for payment breaks without reclassifying the loans and it has been done in other Countries. We have had capital buffers reduced to free up bank capital. Banks have had plenty of help during this crisis just like they do during every crisis.

I am paying my mortgage in full and I have zero issue with anyone getting a payment break without the possibility of thousands being added onto their interest bill if they have been genuinely impacted by this virus.

Banks aren't charities but they are not victims either. They spend millions telling us how they are there for us during these tough times but I struggle to see too much evidence of it. Look at charging current account fees at the height of the crisis, disqualifying anyone with TWSS from drawing down a mortgage, announcing branch closures without giving notice. I could go on......

 

[Purple]

I am paying my mortgage in full and I have zero issue with anyone getting a payment break without the possibility of thousands being added onto their interest bill if they have been genuinely impacted by this virus.

If they repay the extra money over the next 12-24 months then it will only cost them hundreds, or less.
The interest on €100,000 is around €160 a month over 25 years. Charging interest on the payment holiday means they accrue interest on that €160 per €100,000. That means on a €250,000 mortgage the interest accrues on €400 per month. No repayments for 3 months means that there's additional interest on €1200. That amounts to tens of Euro if it is repaid over a 24 month period.

disqualifying anyone with TWSS from drawing down a mortgage

I thought that was just prudent.

 

[Duke of Marmalade]

If they repay the extra money over the next 12-24 months then it will only cost them hundreds, or less.
The interest on €100,000 is around €160 a month over 25 years. Charging interest on the payment holiday means they accrue interest on that €160 per €100,000. That means on a €250,000 mortgage the interest accrues on €400 per month. No repayments for 3 months means that there's additional interest on €1200. That amounts to tens of Euro if it is repaid over a 24 month period.

I think that is broadly right. My own figures would go as follows. Let's say €1,000 per month holiday for 3 months and then paid back over 2 years. Assuming mortgage rate is 2.5% I work that out at about €75 extra interest. It would be very messy indeed to isolate this €75 from the overall interest charged over 2 years which would be about €15,000.
Comparing this with, say, the Revenue not charging interest on tax deferral is a tad misleading IMHO.
Certainly any demand that interest should actually be waived during the payment holiday is akin to the Revenue cancelling the tax liability.

 

[allaround]

good piece Brendan, at some point it would be helpful to see all mortgage rates close to or below 2%

 

[Rosjohn]

As there's a single European Market why can't I get a 2% mortgage in Holland or Germany for a house in Ireland?

 

[EmmDee]

As there's a single European Market why can't I get a 2% mortgage in Holland or Germany for a house in Ireland?

The problem isn't their ability to offer the product here. It is that a bank in Germany or Holland would then need to build up expertise on Irish legal system, would have to be willing to take cross border legal action if required, would have the problem of marketing and contact points. Not worth their time or risk

 

[Merowig]

You can but it is difficult. Got something via a broker offered.
Also if you own a property in Germany which is paid off you can borrow against it for paying here in Ireland a house off....