FF bill on mortgage interest rates

The Fianna Fáil bill will be discussed in Private Members' Time next Tuesday and Wednesday from 7.30 pm to 9 pm.

Michael McGrath will introduce the bill and the Minister for Finance will respond on Tuesday.

You may remember that the Fianna Fáil motion on this issue in March really got the media attention on the issue the last time.

This is an opportunity for all of you affected by this issue to do something about it. Contact your TD and ask them to sign you in on Tuesday and tell them that you expect them to attend the debate. If you can't go on Tuesday, go on Wednesday.

You can see the Bill here

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/bills28/bills/2015/5415/b5415d.pdf

Brendan

Summary of the Bill

2) The Central Bank shall carry out an assessment of the market for home loans
4) If it comes to a conclusion that a market failure exists,
5) It can direct a lender or lenders to reduce its rate to a set figure or margin
7) Lenders must offer existing customers the rates available to new customers, other than one off payments for stamp duty and legal costs.

When setting the rate, the Central Bank may
a) set a specific rate
b) set a margin above cost of funds
c) set a margin above the ECB rate
d) set a rate not more than 1/3rd above the average variable mortgage rate

When determining whether a market failure exists, the Central Bank shall consider the following:

(a) the variable interest rates being charged by lenders;

(b) the ease with which borrowers can switch their principal dwelling house mortgage loans between lenders or between products offered by the same lender;

(c) the extent to which borrowers are switching their principal dwelling house mortgage loans between lenders or between products offered by the same lender;

(d) the relationship and proportionality between the variable interest rates being charged by each lender and the cost of funds of that lender;

(e) the trend in variable interest rates being charged in the principal dwelling house mortgage loan market over time;

(f) lenders’ cost of funds and the trend in lenders’ cost of funds over time;

(g) lenders’ weighted average cost of capital and the trend in lenders’ weighted average costs of capital over time;

(h) the risk profiles of individual lenders in respect of variable interest rate principal dwelling house mortgage loans;

(i) lenders’ reasonable profit expectations in the prevailing market conditions;

(j) the proportion of the principal dwelling house mortgage loan market accounted for by each lender; and

(k) such other matters as the Governor of the Central Bank may certify as being of relevance.

11 of us watched the debate on the bill last night.

Michael McGrath kicked off the debate. I am astonished at the enthusiasm which he can muster when addressing government benches, empty apart from Damien English, the Minister of State who responded on behalf of the government. Three other FF TDs contributed - I was again impressed by Eamon O'Cuiv who seemed very much on top of the subject. Sean Fleming and Charlie McConalogue spoke as well.

The government response was along the following lines:
We have a process in train.
The lenders have cut some of the rates and the Minister will be meeting them again in September.
The options of a bank levy and giving the CB control of mortgage rates are still being considered.
The central bank does not want the power to control interest rates
People should consider availing of fixed rates
The bill is premature given that this process is under way.

For most of the debate,the only person present on the Government benches was Damien English. There were short contributions from Robert Dowds of Labour and two other FG TDs who didn't really say anything. They spoke about ghost estates and mortgage arrears but didn't really contribute anything to the discussion. One of the FG TDs said that he disagreed with a bank levy.

Other contributions were made by Pearse Doherty, Dessie Ellis, Mattie McGrath and the turf cutting TD whose name I forget.

Overall the atmosphere was very different from the motion presented by FF in March. Most of the government TDs who spoke supported the motion and complimented Michael McGrath for bringing it forward. This time they were mainly accusing FF of opportunism.

Hi I was in the public gallery last night for the final part of the Bill and subsequent vote. It was interesting and sad at the same time to here so many Fine Gael TDs speak positively about the Bill . However when it came to the vote they hadn't the courage to do what was right and vote for it. The Bill was rejected 70/45.
Deirdre

As this bill is back on the order paper and has a good chance of being passed, I think it's worth analysing it and proposing amendments.

The Central Bank is determined to make sure that the non tracker mortgage holders fund the profitability of the Irish banks. They will not use their power to cut mortgage rates.

Rather than giving the CB the power to intervene, I think it would be better to impose a mortgage rate ceiling e.g. ECB +3%, but allow the lenders to apply for and justify an exemption. So if they can justify charging ECB +4% to 90% LTV mortgages, fair enough. But the lender would have to justify it and the Central Bank would have to agree.

But the Central Bank will agree every time...I wouldn't trust them to act in the best interests of consumers.

Why not simply introduce a statutory cap whereby banks cannot charge more than 1/3 above the average market rate? The average would include all outstanding mortgages (including trackers).

Take the Central Bank out of the picture completely (other than calculating the average rate).

Sarenco said:

Why not simply introduce a statutory cap whereby banks cannot charge more than 1/3 above the average market rate? The average would include all outstanding mortgages (including trackers).

Take the Central Bank out of the picture completely (other than calculating the average rate).

Click to expand...

The FF bill actually allows for that:

Brendan Burgess said:

When setting the rate, the Central Bank may
a) set a specific rate
b) set a margin above cost of funds
c) set a margin above the ECB rate
d) set a rate not more than 1/3rd above the average variable mortgage rate

Click to expand...

1) It makes no sense to include trackers. It should be based on new lending only. The lenders should not be penalised for stupid lending decisions in the past.
2) It would not solve the problems of all the lender charging excessive rates. Let's look at how it would work in practice with today's figures:


What is the average rate for 50% LTVs?
Somewhere between 3.1% and 3.7% - let's say 3.5%. So under your proposal, a lender could charge up to 4.6%.
The 3.1% rate is probably 1.5% ahead of the average rate in other countries for 50% LTVs.

What is the average rate for 90% LTVs?
Between 3.5% and 4.5%. So let's say it's 4%. So the lender could charge up to 5.32%.
Again, it would have no impact.

In a functioning market, your 33% limit would not be needed. In a dysfunctional market, it would have no impact.

Brendan

Gordon Gekko said:

But the Central Bank will agree every time...I wouldn't trust them to act in the best interests of consumers.

Click to expand...

Yes, but they would have to proactively approve it and justify it. Under the FF proposals, they wouldn't have to do anything at all. They would just conclude that there is no market failure and so would not have to intervene.

Brendan Burgess said:

The FF bill actually allows for that:

Click to expand...

It doesn't actually.

The FF Bill gives the Central Bank a discretionary power to fix rates on this basis - it doesn't create an automatic statutory cap.

I don't know why you would exclude trackers - they form a significant part of the pool of outstanding mortgages. But I'm not hung up on it either way - a statutory cap set as a % of average new lending rates would also work.

The average rate on all outstanding mortgages is somewhere around 2.5% at the moment. 133% of that is 3.3% - that sort of change would be a huge advance for many borrowers.

A usury cap is not intended to be a substitute for, or an inhibitor of, competition.

I appreciate that you are in favour of price fixing by the State in the mortgage market but many of us have a problem with that approach. It will deter new entrants, limit competition and, ultimately, result in a higher cost of credit for all.