Brendan Burgess
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I have an article in today's Sunday Times. Here is the article as submitted. I didn't choose the headline, although it is the last line in my article "Maybe Irish borrowers get the lenders they deserve?"
Comment Sunday Times 2 August
Who will pay for permanent tsb’s mistakes?
The cost of permanent tsb’s refund and compensation scheme has been estimated at somewhere between €35 million and €75 million. The ongoing reduction in profits through the reduction in interest rates will be a further €5m each year. On top of that, the Central Bank may impose a fine of up to €20m.
No one should object to a borrower who has been under severe financial pressure for over 6 years due to a mistake by permanent tsb getting €3,200 in compensation. And no one should object to someone who has lost their family home getting compensation of €50,000.
But the question remains: Who will pay for this? Normally, the cost falls on the shareholders in terms of reduced profits. In this case, the main shareholder is the state which owns 75% of the company.
But the Central Bank’s policy towards Irish banks has been very clear. The Central Bank has argued that while Irish mortgage rates are relatively high, the profits of the lenders are not sufficient to generate the required amount of capital. The Central Bank wants the banks to be more profitable even if that is to be at the expense of the non-tracker mortgage holders. So while 1,200 mortgage holders will be celebrating the return of their trackers, the 30,000 non-tracker customers of permanent tsb will continue to pay mortgage rates which are around 2 percentage points above the average rates charged in other Eurozone countries.
Whatever fine is imposed by the Central Bank will go into the coffers of the Central Bank. Although, they have known about this problem since 2010, the Central Bank took no action until June 2014. The Central Bank will be rewarded at the expense of the non-tracker mortgage holders. If there was a deliberate attempt by permanent tsb to deprive people of their contractual rights or if there was a deliberate cover up of an error, then the people involved should lose their jobs. That would be a better outcome for borrowers than having one state owned entity, ptsb, paying a fine to another state owned entity, the Central Bank. And maybe fine the Central Bank for failing to take any action for 4 years!
People losing their homes due to high interest rates
The main reason people struggle with their mortgage repayments is a collapse in income through unemployment or business failure. If someone doesn’t have an income they can’t meet their mortgage repayments, irrespective of the interest rate being charged. If this persists for a long time, they may well lose their home.
41 of the ptsb borrowers who lost their trackers ended up losing their homes. Permanent tsb has estimated that around 30% of these lost their homes because they lost their trackers. In other words, had they not lost their trackers, they would still be in their homes today.
This has very significant implications for the 300,000 or so Irish borrowers who are paying variable mortgage rates which are around twice the average level being paid in other Eurozone countries.
These very high rates are putting borrowers under extreme pressure. Some of them are in arrears who would not otherwise be in arrears. And some have probably lost their homes due to the very high rates. At the last count, there were 15,000 cases listed for repossession before the Circuit Court. It’s hard to know what percentage of these are in trouble due to the high interest rates alone. Even if it’s only 10%, that is still 1,500 people who face losing their home because of the behaviour of their lender.
Unlike the ptsb case, the lenders charging these rates are not in breach of their mortgage contract. They are charging these high rates because they can. There is no competition in the Irish market. The government should step in now before it’s too late. Lenders should be allowed to charge up to 3% above the ECB rate which still leaves them with a generous margin. If they want to charge more than that, they should have to justify it to and get the approval of the Central Bank.
How switched on are consumers?
Letters are currently dropping through the letterboxes of affected Ptsb customers telling them that they have been overcharged and that they will be getting refunds and compensation. What’s more, their tracker is being restored to them. To most of them, this will come as a complete surprise. Of the 1,152 affected customers, only 100 had actually made complaints to the Financial Services Ombudsman. Undoubtedly, some others raised the issue directly with ptsb, but took it no further.
The average overcharge is €22,400, and most borrowers were either not aware of it, or just accepted it.
It is even more astonishing that 220 customers of the permanent tsb subsidiary, Springboard, were paying variable rates instead of tracker rates, and not one of them complained to the company.
39 affected people lost their family home. One would have thought that someone facing the loss of their home would investigate their contract and, at least, argue that they were overpaying. But if seems that none did so. Did their legal or financial advisors not raise the issue or challenge the repossession proceedings on the grounds of the interest rate being different from the contract?
300,000 borrowers are each paying around €350 more per month in interest than they would be if they were in any other Eurozone country. Yet, when the Fair Mortgage Rates Campaign organised a public meeting, only around 100 showed up.
Maybe Irish borrowers get the lenders they deserve?
Brendan Burgess is the founder of the consumer forum Askaboutmoney.com
Comment Sunday Times 2 August
Who will pay for permanent tsb’s mistakes?
The cost of permanent tsb’s refund and compensation scheme has been estimated at somewhere between €35 million and €75 million. The ongoing reduction in profits through the reduction in interest rates will be a further €5m each year. On top of that, the Central Bank may impose a fine of up to €20m.
No one should object to a borrower who has been under severe financial pressure for over 6 years due to a mistake by permanent tsb getting €3,200 in compensation. And no one should object to someone who has lost their family home getting compensation of €50,000.
But the question remains: Who will pay for this? Normally, the cost falls on the shareholders in terms of reduced profits. In this case, the main shareholder is the state which owns 75% of the company.
But the Central Bank’s policy towards Irish banks has been very clear. The Central Bank has argued that while Irish mortgage rates are relatively high, the profits of the lenders are not sufficient to generate the required amount of capital. The Central Bank wants the banks to be more profitable even if that is to be at the expense of the non-tracker mortgage holders. So while 1,200 mortgage holders will be celebrating the return of their trackers, the 30,000 non-tracker customers of permanent tsb will continue to pay mortgage rates which are around 2 percentage points above the average rates charged in other Eurozone countries.
Whatever fine is imposed by the Central Bank will go into the coffers of the Central Bank. Although, they have known about this problem since 2010, the Central Bank took no action until June 2014. The Central Bank will be rewarded at the expense of the non-tracker mortgage holders. If there was a deliberate attempt by permanent tsb to deprive people of their contractual rights or if there was a deliberate cover up of an error, then the people involved should lose their jobs. That would be a better outcome for borrowers than having one state owned entity, ptsb, paying a fine to another state owned entity, the Central Bank. And maybe fine the Central Bank for failing to take any action for 4 years!
People losing their homes due to high interest rates
The main reason people struggle with their mortgage repayments is a collapse in income through unemployment or business failure. If someone doesn’t have an income they can’t meet their mortgage repayments, irrespective of the interest rate being charged. If this persists for a long time, they may well lose their home.
41 of the ptsb borrowers who lost their trackers ended up losing their homes. Permanent tsb has estimated that around 30% of these lost their homes because they lost their trackers. In other words, had they not lost their trackers, they would still be in their homes today.
This has very significant implications for the 300,000 or so Irish borrowers who are paying variable mortgage rates which are around twice the average level being paid in other Eurozone countries.
These very high rates are putting borrowers under extreme pressure. Some of them are in arrears who would not otherwise be in arrears. And some have probably lost their homes due to the very high rates. At the last count, there were 15,000 cases listed for repossession before the Circuit Court. It’s hard to know what percentage of these are in trouble due to the high interest rates alone. Even if it’s only 10%, that is still 1,500 people who face losing their home because of the behaviour of their lender.
Unlike the ptsb case, the lenders charging these rates are not in breach of their mortgage contract. They are charging these high rates because they can. There is no competition in the Irish market. The government should step in now before it’s too late. Lenders should be allowed to charge up to 3% above the ECB rate which still leaves them with a generous margin. If they want to charge more than that, they should have to justify it to and get the approval of the Central Bank.
How switched on are consumers?
Letters are currently dropping through the letterboxes of affected Ptsb customers telling them that they have been overcharged and that they will be getting refunds and compensation. What’s more, their tracker is being restored to them. To most of them, this will come as a complete surprise. Of the 1,152 affected customers, only 100 had actually made complaints to the Financial Services Ombudsman. Undoubtedly, some others raised the issue directly with ptsb, but took it no further.
The average overcharge is €22,400, and most borrowers were either not aware of it, or just accepted it.
It is even more astonishing that 220 customers of the permanent tsb subsidiary, Springboard, were paying variable rates instead of tracker rates, and not one of them complained to the company.
39 affected people lost their family home. One would have thought that someone facing the loss of their home would investigate their contract and, at least, argue that they were overpaying. But if seems that none did so. Did their legal or financial advisors not raise the issue or challenge the repossession proceedings on the grounds of the interest rate being different from the contract?
300,000 borrowers are each paying around €350 more per month in interest than they would be if they were in any other Eurozone country. Yet, when the Fair Mortgage Rates Campaign organised a public meeting, only around 100 showed up.
Maybe Irish borrowers get the lenders they deserve?
Brendan Burgess is the founder of the consumer forum Askaboutmoney.com