Fergal Quinn's bill to control mortgage rates

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gnf_ireland

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I see in today's Irish Times, Feargal Quinn is bringing a private members bill around capping the interest rates banks can charge on SVR's

http://www.irishtimes.com/business/...let-central-bank-cap-mortgage-rates-1.2215890

I believe it would be worthwhile contacting each and every Senator asking them to support this bill and in the event they do not support it, requesting that their party does not seek your vote in the coming election. I would copy the current TD for the area (and any declared candidates), although with the leader of the said party.

We all know there is an election coming up - lots of people will jump on this bandwagon, so its a case of now or never. If the SVR is not changed before spring 2016, its won't happen any time soon.

BTW - I contacted my TD's before Michael McGrath's private members bill. Mary Mitchell-O'Connor replied very quickly. Eamonn Gilmore replied last week with the standard 'party political broadcast' and Richard Boyd-Barrett did not reply at all !
 
Its a start and interesting to see what happens. How long does it take a bill like that to become law though ? In the meantime everyone involved in this should continue to keep lobbying until we have this law passed.
 
Would be interesting to see Brendan's take on this ? Something tangible to get behind or toothless pipe dream ? Heartened to see it's still very much getting traction in the media.
 
I contacted all Senators via email last night, asking them to support Senator Quinn's private members bill, copying my own TD's and all parties spokesperson for finance. I also highlighted to the Labour senators their parties silence on the matter to date. It will be interesting to see what responses I get, if any, and of course how all Senators vote.
I also raised the fact that the people of Ireland placed their faith in the second house, and this was a good example of something they could do to repay this faith. This is not about political point scoring but about resolving an abuse of all SVR mortgage holders

Personally I don't believe increasing the bank levy will work as banks will just increase costs. The only way to handle this is to inform the banks they have 2 months to reduce rates or legislation to cap rates will be introduced.
 
http://www.irishtimes.com/business/...bank-response-on-rate-cuts-in-weeks-1.2217445

"The effort to confront the banks comes amid mounting pressure on Mr Noonan from backbench TDs in Fine Gael particularly, who have been demanding a deeper response from the Government."
“There’s a groundswell of opinion in the parliamentary party this has to happen, a sense that we’ve been a bit flatfooted in response,” said one member of the parliamentary party.
"In some assessments among senior Fine Gael figures, the variable rate question is far more pressing for the party in advance of the general election than the mortgage arrears debacle."
"There was no response yesterday from Mr Noonan’s department to a private member’s Bill from Independent Senator Feargal Quinn which would hand powers to the Central Bank to cap variable interest charges."

I have to agree here with most of what is said, so at least the issue appears to be getting some level of attention among Fine Gael back-bench TD's. This issue is one which has serious financial impacts on a large number of people and is much easier to resolve than the mortgage arrears issue which has been dragging on for 7 years now.
 
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Here is the actual bill


Central Bank (Emergency Powers) (Variable Interest Rates) Bill 2015



AN ACT TO EMPOWER THE CENTRAL BANK TO DIRECT BANKS TO REDUCE MORTGAGE INTEREST RATES CHARGEABLE IN RESPECT OF THE HOLDERS OF VARIABLE RATE MORTGAGES PERTAINING TO THEIR PRINCIPAL PLACE OF RESIDENCE


WHEREAS the Irish economy has endured a prolonged period of serious disturbance which has necessitated a series of emergency legislative measures;

AND WHEREAS European Central Bank interest rates are at a historically low-level;

AND WHEREAS approximately 300,000 Irish mortgage holders are being required to pay mortgage interest rates in respect of their variable rate mortgages which are excessively high in comparison with the European Central Bank interest rates;

AND WHEREAS banks in Ireland are using Irish mortgage holders to supplement loss-making elements of their mortgage book;

AND WHEREAS banks in Ireland have largely declined reasonable requests to voluntarily reduce the levels of mortgage interest rates chargeable in respect of their variable rate mortgages;

AND WHEREAS collectively the burden of taxation, salary reductions and job losses experienced during the recession continue to impact on the economy;

AND WHEREAS the continued charging by banks in Ireland of excessive levels of mortgage interest rates is causing undue hardship, is hampering consumer confidence, and is severely restricting consumer spending;

AND WHEREAS the banking sector is now experiencing a more profitable environment;


AND WHEREAS it is now necessary as an exceptional and time-constrained measure, to empower the Central Bank, for a finite period and for a defined purpose, to direct banks in Ireland to reduce the levels of interest which they charge in respect of the holders of variable rate mortgages relating to their principal place of residence -

BE IT THEREFORE ENACTED BY THE OIREACHTAS AS FOLLOWS:

Interpretation.

1. - In this Act -


“authorised credit institution” has the meaning assigned to it in section 2(1) of Central Bank and Credit Institutions (Resolution) Act 2011;


“Head of Financial Regulation” means the person who, for the time being, holds the office of Deputy Governor (Financial Regulation) at the Central Bank of Ireland;


“principal place of residence” means a building or structure (whether temporary or not) which is constructed or adapted for use as a dwelling and is being so used as the principal place of residence by a mortgage holder;


“reduction” means a reduction to a specified level, to remain in place for a specified period with such period not to exceed 12 months, renewable thereafter;


“relevant institution” means an authorised credit institution which had been offering variable rate mortgages to retail customers in the State on or before 1 January 2015.



Issuing of directions to banks.

2. - (1) Having consulted with the Minister for Finance, the Head of Financial Regulation may issue a direction to one or more relevant institutions directing a reduction in the variable interest rate which is chargeable in respect of mortgages issued by that relevant institution and which are held by persons in respect of their principal place of residence.

(2) Before issuing a direction under subsection (1) the Head of Financial Regulation shall have regard to the following matters -

(a) the base rate set by the European Central Bank,

(b) the level of interest chargeable by the relevant institution in respect of a mortgage held by a customer over their principal place of residence,

(c) the level of variable interest charged by banks in EU member states in respect of mortgages to retail customers, and

(d) any other factors which he or she considers to be of relevance.

Enforcement of directions.

3. - Section 47 of the Central Bank (Supervision and Enforcement) Act 2013 is amended -

(a) in subsection (1) by substituting “subsection (1) or (4) of section 45 of this Act or section 2 of the Central Bank (Emergency Powers) (Variable Interest Rates) Act 2015” for “subsection (1) or (4) of section 45”; and

(b) in subsection (2) by substituting “subsection (1) or (4) of section 45 of this Act or section 2 of the Central Bank (Emergency Powers) (Variable Interest Rates) Act 2015” for “subsection (1) or (4) of section 45”.

Sunsetting of legislation.

4. - (1) This Act shall cease to have effect on a date which is three years after the date of its passing unless a resolution has, before its expiry, been passed by each House of the Oireachtas resolving that the Act should continue in operation for such period as may be specified in the resolutions.

(2) Before a resolution under this section is passed by either House of the Oireachtas, the Central Bank of Ireland shall at the request of the Minister for Finance prepare a report, and shall cause a copy of it to be laid before each House of the Oireachtas, of the operation of the Act during the period beginning on the passing of this Act or, as may be appropriate, the date of the latest previous report under this subsection in relation to the Act and ending not later than 21 days before the date of the moving of the resolution in that House.

Saving provision.

5. - A direction which has been issued by the Head of Financial Regulation prior to the cessation of this Act shall continue in force for the period stated therein as if this Act had continued operation up to the date upon which the direction is stated as being due to expire.

Short title.

6. - This Act may be cited as the Central Bank (Emergency Powers) (Variable Interest Rates) Bill 2015.
 
EXPLANATORY MEMORANDUM




Context

The logic goes that if a person has a mortgage on a variable interest rate, the term "variable" must mean that when ECB interest rates go up, so too does the mortgage interest rate and equally when the ECB rate goes down, so too should the mortgage interest rate charged by banks.


In a normal functioning banking market, a healthy degree of competition within the market would ensure that a reduction in the ECB base rate would result in the interest rate charged in respect of variable rate mortgages being passed on to consumers. However, this has not happened – and it has not happened for a variety of reasons:


1. We do not yet have a normal, functioning banking market in Ireland - there is no real competition within the banking sector in Ireland;

2. The Banks wish to continue subsidising the loss-making elements of their mortgage books (on buy-to-let, trackers and mortgage arrears), with funds taken from soft targets;

3. Reluctance at a political level to tackle the banks head-on.



Purpose of this Bill

The purpose of this Bill is to empower the Central Bank to direct banks in Ireland to reduce the level of interest which they are charging in respect of variable rate mortgages.



Proportionality

Mindful of the need for the measures contained in this Bill to be proportionate to the objective to be achieved, this Bill seeks to ensure that the Bill is minimal in its reach. It does so through the following features:


1. The legislation is a temporary measure – it will lapse after three years;



2. A direction issued by the Central Bank will remain in force for only one year;


3. A direction issued by the Central Bank will only apply to variable rate mortgages which have been taken out in respect of a person’s principal place of residence;


4. The Bill will only apply to Banks which were operating in the Irish market on or before 1 January 2015. No new entrants to the market will be affected. This measure is designed to ensure that this Bill is not seen as being an obstacle to new entrants.
 
Brendan Burgess said:
4. The Bill will only apply to Banks which were operating in the Irish market on or before 1 January 2015. No new entrants to the market will be affected. This measure is designed to ensure that this Bill is not seen as being an obstacle to new entrants.
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That is a very clever bit. If it's constitutional, it would counter the main objection to control of interest rates.
 
Brendan Burgess said:
That is a very clever bit. If it's constitutional, it would counter the main objection to control of interest rates.
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Not so sure it is.

This would be direct political retrospective interference in private contracts.

If they did it for all the incumbent Banks prior to Jan 1, 2015, what's to stop them doing it in May 2016 for all lenders operating as of Jan 1, 2016.

In fact, I don't think there's anything clever about this at all. This is ridiculous.
I note from your summary & as suggested in the Bill text - the SVR would be linked to the ECB rate = ergo this would make all mortgages trackers. Is that not one of the main problems the Banks have?

Edit - from the SVR campaign perspective though, the more political and media coverage, regardless of it's practicality, the better.
 
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Andy 836.
We have already had {direct political retrospective interference} it was called a bail-out !

I think we all grudgingly accept the need to save our Banks , but didn,t sign up to bailing them out to be gouged by them !
 
Gerry Canning said:
Andy 836.
We have already had {direct political retrospective interference} it was called a bail-out !

I think we all grudgingly accept the need to save our Banks , but didn,t sign up to bailing them out to be gouged by them !
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Hi Gerry,
I would hardly call it gouging. They're paying a 2% higher interest than their European counterparts, but are also getting the benefit that if they don't pay they don't loss their home (unlike their European counterparts).

I accept your point, and Brendans, but without fixing the underlying problems (removing the tracker books off balance sheet & allowing swift repossessions), any solution will be a short term fudge designed purely to win votes.
 
Andy836 said:
Hi Gerry,
I would hardly call it gouging. They're paying a 2% higher interest than their European counterparts, but are also getting the benefit that if they don't pay they don't loss their home (unlike their European counterparts).

I accept your point, and Brendans, but without fixing the underlying problems (removing the tracker books off balance sheet & allowing swift repossessions), any solution will be a short term fudge designed purely to win votes.
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Tell that to the 300,000 who are paying extra each month !
Banks like any business should not expect their good customers to carry the mistakes the Banks made, I think it is called Capitalism.
 
Andy836 said:
They're paying a 2% higher interest than their European counterparts, but are also getting the benefit that if they don't pay they don't loss their home (unlike their European counterparts).
Click to expand...
I think we all accept that there is an issue with the ability to reposess homes in the event of non-payment - resulting in irish mortgage debt effectively being unsecured debt. However asking a subset of the market to pay for this for the entire market is unfair.

Why should I be asked to pay an additional ~150 euro a month (assuming this accounts for 1% of the increased costs) to pay for others not to lose their homes. If I stop paying in the morning, I am sure the banks would come after me relatively quickly since my LTV is around 45% and therefore they are pretty much guaranteed to get their money back when the house is sold

I would genuinely like each bank to clearly state what portion of their variable interest rate is to cover the 'difficulty in securing the asset in the event of non-payment'?
 
Gerry Canning said:
Tell that to the 300,000 who are paying extra each month !
Banks like any business should not expect their good customers to carry the mistakes the Banks made, I think it is called Capitalism.
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I agree with you entirely. I've received emails from government tds who agree but I've also received an email from my local fine gael td who would differ saying the banks are paying a higher rate to buy money than EU counterparts. He won't be getting my vote. I anxiously await a statement from Mr Noonan after his meetings with the banks.
 
Brendan Burgess said:
AND WHEREAS the continued charging by banks in Ireland of excessive levels of mortgage interest rates is causing undue hardship, is hampering consumer confidence, and is severely restricting consumer spending;
Click to expand...

And this points needs to be hammered home as the largest component of domestic demand is consumption expenditure. High SVRs are restricting economic growth.
 
They are hopefully bringing down the Variable rates and about time, what about people stuck on high fixed rates?
 
smithers.

People are not (stuck) on fixed interest rates . They took a balanced decision that fixing was the best option when they fixed.
It is tough that they are now paying a bit more , but its a tough world.

On SVR,s; customers clearly understood SVR,s would follow rates up or down.
ie . SVR is completely different to fixed.
 
Gerry Canning said:
smithers.

People are not (stuck) on fixed interest rates . They took a balanced decision that fixing was the best option when they fixed.
It is tough that they are now paying a bit more , but its a tough world.

On SVR,s; customers clearly understood SVR,s would follow rates up or down.
ie . SVR is completely different to fixed.
Click to expand...

I understand they are different but a lot of people only fixed at high rates to protect themselves from the banks who can keep putting rates up with no cap. The fixed rates should have been lower in the first place but I do understand that we made that decision and have to live with it. A cap needs to be put in place as a matter of urgency. it should have happened years ago, madness that the banks can charge whatever they like. Will be interesting to see what happens to SVR rates when the ECB starts to rise.
 
[QUOTE="Gerry Canning, post: On SVR,s; customers clearly understood SVR,s would follow rates up or down.
ie . SVR is completely different to fixed.[/QUOTE]

It seems like your confusing SVRs with trackers.
When we took out our mortgage in June 2006, I asked our mortgage advisor for a tracker, but our request was refused. We were informed that trackers were not available on 100 percent mortgages.
I remember feeling worried as I knew that the banks could do as they wished with SVRs. However, as I - along with so many of our fellow citizens - was in panic mode, I reluctantly accepted the terms.
I wonder what's the true percentage of SVR payers that incorrectly believed that the banks would treat SVRs in the same way as trackers?
 
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