Brendan Burgess
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Here is an article by Niall Brady in the Sunday Times which is a good report on the public meeting. (Reproduced with permission)
Nationalising the banks was an ambition harboured only by the hard left until the financial crash in 2008 made it a political imperative, even for those on the other side of the ideological divide. Just as bankers prepare for a return to private ownership, however, they could be facing another dose of socialism: state regulation of lending rates.
Responding to the growing row over ripoff standard variable rate (SVR) mortgages, Michael Noonan told the Dail last week he would allow the Central Bank to rein in the cost of borrowing if the regulator asked for this power. This was a crude attempt by the finance minister to dodge an issue that could be decisive in next year’s general election.
If state intervention is necessary to curb mortgages costs, the government must take responsibility instead of claiming Dame Street made it do it. With 300,000 homeowners stuck on SVR mortgages, political insiders report that the issue is becoming a common complaint at TDs’ constituency offices. Some predict it could become a headache for the government to rival the revolt over the withdrawal of medical cards two years ago.
The latest data released by the Central Bank on Friday confirms something is seriously awry. Interest rates on new variable mortgages averaged 4.13% in the first three months of the year, a slight reduction on the final months of 2014, but way above the eurozone average of 2.1%. A housebuyer in Ireland pays €2,450 more in interest a year on a mortgage of €200,000 than in other eurozone countries. How can this be when the European Central Bank sets a single interest rate for the whole euro bloc?
The pricing gap is now so wide that even economic libertarians are grudgingly accepting the need for temporary state intervention because, with only five mortgage players competing for business, the market has clearly failed.
State control of interest rates won widespread support last week among the 130 homeowners who turned up for the first meeting of the SVR Campaign, led by consumer advocate Brendan Burgess of Askaboutmoney.com. Most believed this would be more effective than public protests, punishing the banks with higher levies or boycotting their ancillary products such as credit cards or mortgage protection insurance.
Fianna Fail’s finance spokesman Michael McGrath told the meeting his preferred solution — greater competition to drive down the cost of mortgages — would be impossible in the short term. He wants more immediate results such as legislation to cap the interest margins banks could earn from mortgages. This has been tried elsewhere, with France capping the margin charged by individual lenders at 133% of the market average. A cap would have to work differently in Ireland because in this country the problem is the market average, rather than high mortgage rates imposed by one or two maverick lenders.
Veterans of past battles with the banks see legislation as the only way of keeping them in check. One homeowner told the meeting how she was part of a campaign that highlighted extortionate mortgage rates at Permanent TSB’s annual general meeting in 2011. The bank relented by reducing its rates but it turned out to be a pyrrhic victory because, while Permanent TSB no longer charges mortgage rates of more than 6%, its SVR remains stubbornly high.
Some in Fine Gael agree. Brian Hayes, a member of the European parliament who accused the banks of engaging in “an extraordinary scam”, believes a legislative cap may be unavoidable. “Legislation to control mortgage rates may be needed for a period of time, although I would have doubts about it as a longterm solution,” he told the meeting.
Davy, the stockbroker, warns that curbs on mortgage rates could have unintended consequences for savers. It said part of the reason mortgages are so expensive is that banks are paying over the odds for deposits. Savers earn 0.7%1.55% on 12month deposits, while they would currently lose money by investing in Irish government bonds for the same period. If banks are forced to reduce the cost of mortgages — a move Davy believes would be “unhelpful from a competition perspective and potentially detrimental to [the banks] achieving sustained profitability” — savers would inevitably suffer. Even if the banks see off attempts at regulatory intervention, they will face opposition to their mortgage margins on other fronts.
Barrister Ross Maguire of New Beginning, which provides legal representation for homeowners facing repossession, believes banks are flouting European regulations that outlaw unfair terms in consumer contracts. “It’s unlawful to change contract terms unilaterally, yet banks can increase mortgage rates at their complete discretion, which is arguably unlawful,” he said. “They have found a sweet spot for mortgage rates that allows them to squeeze customers.” With an election on the way, timing is on the side of the SVR Campaign. Questioned about the equivocation of his colleagues in government, Hayes pledged that SVRs would be a red line issue for him. “Without resolution, it would be politically impossible for government to go knocking at your door looking for your vote.”
Nationalising the banks was an ambition harboured only by the hard left until the financial crash in 2008 made it a political imperative, even for those on the other side of the ideological divide. Just as bankers prepare for a return to private ownership, however, they could be facing another dose of socialism: state regulation of lending rates.
Responding to the growing row over ripoff standard variable rate (SVR) mortgages, Michael Noonan told the Dail last week he would allow the Central Bank to rein in the cost of borrowing if the regulator asked for this power. This was a crude attempt by the finance minister to dodge an issue that could be decisive in next year’s general election.
If state intervention is necessary to curb mortgages costs, the government must take responsibility instead of claiming Dame Street made it do it. With 300,000 homeowners stuck on SVR mortgages, political insiders report that the issue is becoming a common complaint at TDs’ constituency offices. Some predict it could become a headache for the government to rival the revolt over the withdrawal of medical cards two years ago.
The latest data released by the Central Bank on Friday confirms something is seriously awry. Interest rates on new variable mortgages averaged 4.13% in the first three months of the year, a slight reduction on the final months of 2014, but way above the eurozone average of 2.1%. A housebuyer in Ireland pays €2,450 more in interest a year on a mortgage of €200,000 than in other eurozone countries. How can this be when the European Central Bank sets a single interest rate for the whole euro bloc?
The pricing gap is now so wide that even economic libertarians are grudgingly accepting the need for temporary state intervention because, with only five mortgage players competing for business, the market has clearly failed.
State control of interest rates won widespread support last week among the 130 homeowners who turned up for the first meeting of the SVR Campaign, led by consumer advocate Brendan Burgess of Askaboutmoney.com. Most believed this would be more effective than public protests, punishing the banks with higher levies or boycotting their ancillary products such as credit cards or mortgage protection insurance.
Fianna Fail’s finance spokesman Michael McGrath told the meeting his preferred solution — greater competition to drive down the cost of mortgages — would be impossible in the short term. He wants more immediate results such as legislation to cap the interest margins banks could earn from mortgages. This has been tried elsewhere, with France capping the margin charged by individual lenders at 133% of the market average. A cap would have to work differently in Ireland because in this country the problem is the market average, rather than high mortgage rates imposed by one or two maverick lenders.
Veterans of past battles with the banks see legislation as the only way of keeping them in check. One homeowner told the meeting how she was part of a campaign that highlighted extortionate mortgage rates at Permanent TSB’s annual general meeting in 2011. The bank relented by reducing its rates but it turned out to be a pyrrhic victory because, while Permanent TSB no longer charges mortgage rates of more than 6%, its SVR remains stubbornly high.
Some in Fine Gael agree. Brian Hayes, a member of the European parliament who accused the banks of engaging in “an extraordinary scam”, believes a legislative cap may be unavoidable. “Legislation to control mortgage rates may be needed for a period of time, although I would have doubts about it as a longterm solution,” he told the meeting.
Davy, the stockbroker, warns that curbs on mortgage rates could have unintended consequences for savers. It said part of the reason mortgages are so expensive is that banks are paying over the odds for deposits. Savers earn 0.7%1.55% on 12month deposits, while they would currently lose money by investing in Irish government bonds for the same period. If banks are forced to reduce the cost of mortgages — a move Davy believes would be “unhelpful from a competition perspective and potentially detrimental to [the banks] achieving sustained profitability” — savers would inevitably suffer. Even if the banks see off attempts at regulatory intervention, they will face opposition to their mortgage margins on other fronts.
Barrister Ross Maguire of New Beginning, which provides legal representation for homeowners facing repossession, believes banks are flouting European regulations that outlaw unfair terms in consumer contracts. “It’s unlawful to change contract terms unilaterally, yet banks can increase mortgage rates at their complete discretion, which is arguably unlawful,” he said. “They have found a sweet spot for mortgage rates that allows them to squeeze customers.” With an election on the way, timing is on the side of the SVR Campaign. Questioned about the equivocation of his colleagues in government, Hayes pledged that SVRs would be a red line issue for him. “Without resolution, it would be politically impossible for government to go knocking at your door looking for your vote.”
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