FF Bill to tackle mortgage rates to be debated on Tuesday and Wednesday night

Brendan Burgess

Brendan Burgess

Founder
Messages
54,777
Great news.

The bill on giving the Central Bank power to control mortgage rates will be the first bill to test how the new Dáil situation works in practice.

FF has allocated its private member's time on Tuesday and Wednesday night to the bill.

I don't fully understand the stages, but they have managed to skip the first stage of moving the bill. So there will be a full debate tomorrow and Wednesday.

Over the summer there will be consultations and the bill will be amended and passed when the Dáil resumes in September. I have suggested amending it to make sure that any incentives given to new customers cannot be clawed back if the borrower switches.

The government's response tomorrow will be interesting. There is no point in them voting against the bill as the majority of the Dáil will vote in its favour.

I imagine that the Central Bank will try its best to scupper the bill. Of course, if the banks reduced their rates to Eurozone levels, the Bill would not be necessary.

Brendan
 
@Brendan Burgess Thanks for letting us all know

Is it worth everyone emailing their TD's asking for support for this bill ? Even if competition comes into the market, it will not help those who cannot switch. This bill will be worth-while, even if it only helps those who cannot switch

Interesting move re proposing the "no claw-back" on incentives - this dramatically reduces the attractiveness of these from a bank point of view as they cannot lock you in. Any chance they will now only offer these for those who go onto 3-5 year fixed rates, therefore encouraging people to go onto fixed rates?
That said, if they remove them for SVR, it means they would have to play on a level field in this area !
 
TDs would welcome some ideas for their speech on the issue. I doubt if any of them will oppose the bill.

If I were a TD I would be making a speech about the way competition will not help borrowers who are captive to their lender, and therefore this bill is necessary.

Brendan
 
gnf_ireland said:
That said, if they remove them for SVR, it means they would have to play on a level field in this area !
Click to expand...
Why not remove them completely? They are an irrelevancy to what is a long term financial product! Changing ones mortgage provider is not done on a whim! It is an expensive and time consuming process and it is highly unlikely that anyone will do this to benefit from an opening offer. Virtually any margin differential between providers will provide far more benefit over the longer term than an opening cash-back offer!!
 
@44brendan But removing them means they would have to lower their SVR rate - this appears to be something they are seriously reluctant to do currently !
 
Thank you Brendan for the update on this. Like you say good news. Lets hope we see some action on this soon.
 
Looking forward to see how the bill is going to be phrased, from a legal / technical point of view.

As for those "cash back" incentives - they seriously should be outright banned. For most people it is just an incentive to take on more debt, and blow it on "stuff", which they then pay back over the lifetime of the mortgage.
 
We have issued this press release just now


The Fair Mortgage Rates Campaign welcomes the Central Bank (Variable Rate Mortgages) Bill 2016 and encourages all TDs to support it in the Dáil vote tomorrow night.

The Central Bank and the Department of Finance have long claimed that competition will solve the mortgage rates problem. This shows their complete failure to understand what is actually happening in the mortgage market. If a new lender were to enter the market tomorrow, they would target prime borrowers with loans of less than 80% Loan to Value. While this would help those who can switch lenders, it would be of no help to the 100,000 or so borrowers who can’t switch due to

· having LTVs in excess of 80%

· having rescheduled their mortgage in the past 5 years

· having mortgage arrears in the last 5 years

· no longer meeting the Loan to Income requirements due to a fall in income

The Central Bank claims to welcome competition but it has been dragging its heels over approving a new lender, Frank Mortgages, which would introduce real competition into the market. If the Central Bank genuinely welcomed competition, they would have pulled out all the stops and approved Frank Mortgages within a month of receiving the application.

There is a significant risk that increased competition for the prime borrowers could actually result in higher rates for existing customers who can’t move if these rates are not controlled.

While we welcome the bill, we believe that as currently worded, it places too much reliance on the Central Bank. The Central Bank would have to conclude that a market failure exists before taking any action. The Central Bank cannot be trusted. It has consistently put the interests of the mortgage lenders above the interests of borrowers and has taken no action to prevent the lenders from fleecing customers.

The Fair Mortgage Rates Campaign would prefer an absolute mortgage rate cap of 3% above the ECB rate with lenders able to exceed this cap only if they could show a justification for it. This would ensure that the customers of vulture funds in particular, would be protected.

We would also like to see the bill amended to ensure that banks are prohibited from clawing back any incentives given to attract new business. At present, Bank of Ireland and permanent tsb give borrowers a 2% cash back but claw this back if the borrower switches lender within 5 years. This clawback acts as a disincentive to competition and should be prohibited.

The provision in the bill which obliges lenders to offer existing customers the rates available to new customers is to be particularly welcomed. It is outrageous that lenders reduce rates to attract new customers, while not reducing rates for existing customers. Fair treatment for all could be achieved by obliging all lenders to quote a Standard Variable Rate with a discount for lower LTVs. The lender would be free to vary the SVR in line with market conditions, but the discount agreed at the outset would not change over the life of the mortgage. This would ensure that all existing customers benefit from rate decreases.

The banks have brought this legislation down on themselves through their own stubbornness. This legislation should not have been necessary. The banks have had plenty of time to bring their mortgage rates down towards Eurozone levels but they have refused.

Fairer and lower mortgage rates will improve affordability, reduce arrears and boost spending in the economy generally. It’s time to get on with it.

Brendan Burgess



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;
 
Interestingly, RTE is now reflecting the view expressed by some posters that this proposed legislation could actually be counter-productive.
http://www.rte.ie/news/business/2016/0516/788839-blog-mortgage-rates/

Personally, I take the view that the proposed legislation is more likely to be completely ineffective in terms of achieving any of its stated aims, which is a pity because I am of the opinion that mortgage borrowers that are not in a position to switch providers are deserving of a degree of (effective) statutory protection.
 
Michael Noonan is trying to delay the bill by proposing to refer it to pre-legislative scrutiny. The bill can be passed tonight and the full scrutiny can be done of the provisions as they are being discussed.

It is the exact same bill which was introduced last July and he raised none of these issues back then.

Brendan

Press Statement by Minister for Finance Michael Noonan T.D.

On the subject of Excessive variable mortgage rates



This Bill has been tabled by Fianna Fáil and proposes to give power to the Central Bank of Ireland to regulate interest rates. This Bill will be discussed in the Dáil tonight (Tuesday) with wrap up tomorrow (Wednesday).

I feel there are three major flaws in the Bill as presented.



  1. Some of the provisions appear unconstitutional
  2. With provisions like these the European Central Bank will need to be consulted before legislation could be enacted.
  3. The Central Bank Governor (and his predecessor) has stated that they do not wish to regulate interest rates. As an independent body even if the Central Bank were given the power to regulate interest rates they could not be required to exercise this power. In addition competition is not a function of the Central Bank, it falls within the remit of the Competition and Consumer Protection Commission (CCPC).
For these reasons, and to assess other unintended consequences, I consider it essential that this Bill goes through pre-legislative scrutiny. After all, it was for such reason that the Programme for Government provides that this would be mandatory for new Bills.

I have received Government approval to propose to the Dáil that the Bill be sent for pre-legislative scrutiny rather than pass second stage. In the event that our reasoned amendment is not accepted by the Dáil, I proposed and it has been agreed that we should not oppose the passage of the Bill at Second Stage and let it go forward to Committee Stage. This approach is currently being examined with the Oireachtas Bills office.



The Government does of course share the principle of reducing standard variable rates.

Now that the banks are almost fully recovered they will be in a position to do more to help their customers.

It is widely agreed that competition is the best way to reduce rates and ensure that we have a sustainable and viable mortgage market and that the heavy hand of regulation may not be the best way to engender competition.

There are also some signals that new entrants are looking to enter the Irish market. This level of competition will put further downward pressure on interest rates.



The steps I have taken thus far have been very effective. Banks have reduced their variable and fixed rates. I would like to see the banks aiming to suit the different needs of different people.

The Government also encourages switching options between various institutions made easier for customers. In addition, the Central Bank supports the Department of Finance engaging with banks on their procedures to make it easier for customers to switch.
 
That's where Noonan is wrong.

He hasn't done enough.

He hasn't been effective.

Aib was the best. But Noonan had no influence over BOI.
 
So if the Government proposal to send the Bill for pre-legislative scrutiny is not accepted, the Government will not oppose the passage of the Bill at second stage, even though the Government (rightly or wrongly) believes the Bill is seriously flawed and raises constitutional issues.

We truly live in a very strange democracy.
 
Your doing Great work Brendan

My advice

No 1 ...New and Existing customers should lawfully be entitled to the same rates.

No 2 ....Negative equity does not mean you cannot switch if your property was ever in positive equity. The economy is not the customers fault

No 3... Universal 5 or 10 step simple straightforward switching process available to everyone

No 4.... Fixed Rates available to all borrowers

No 5 ...... No two types of mortgages for the same amount of borrowings should differ in price by more than 1%

No 6..... Any mortgage that is over 4per cent incurs a levy for the bank that makes it much less or not profitable


Ive made up these ideas in 2 minutes so dont slay me. .theyr just ideas
 
Also anybody who voted a repeat of the same government knew what they were letting themselves in for. To get change vote change. The same will bring the same.
 
Sarenco said:
So if the Government proposal to send the Bill for pre-legislative scrutiny is not accepted, the Government will not oppose the passage of the Bill at second stage, even though the Government (rightly or wrongly) believes the Bill is seriously flawed and raises constitutional issues.

We truly live in a very strange democracy.
Click to expand...

Hi Sarenco

They believe that only parts of the bill are flawed. They can propose amendments to fix the flaws.

There is no need to reject the entire bill and delay it even further.

Brendan
 
Will the Bill only apply to new mortgages issued after it is passed? Can it apply to pre-existing mortgages? Presume private property rights may have a role here?

Haven't really seen this angle addressed in debate yet.
 
Brendan Burgess said:
There is no need to reject the entire bill and delay it even further.
Click to expand...


Well I don't pretend to understand politics but it seems very odd to me that elected representatives would not oppose a Bill they believe is fundamentally flawed and/or unconstitutional.

Surely the Government objects to the primary purpose of the Bill, which is to give the Central Bank the power to fix mortgage rates in specified circumstances? What aspects of the Bill does the Government agree with?
 
Ah, I see your point.

If the government thinks that whole bill is flawed, then they should simply oppose it. They don't want to do that as they probably don't want to be defeated on a substantial, rather than a procedural issue.

It would be difficult for Shane Ross to vote against a bill which tries to reduce interest rates. Presumably he can vote in favour of this even if FG votes against it.

Brendan
 
To be honest, this is probably all about politics and bluster.

Michael Noonan is correct in that competition it is not a function of the central bank, but consumer protection is.

Even if this Bill were to be passed, there is nothing in it to compel the central bank to set mortgage interest rates, it is rather that it may if it wishes, which of course it will not.

Other than giving false hopes to SVR mortgagors, this Bill will achieve nothing.
 
Last edited:
Sophrosyne said:
Other than giving false hopes to SVR mortgages, this Bill will achieve nothing.
Click to expand...

Hi Sop

Even if the CB were to do nothing, the following clause would have an immediate and significant impact:

"7) Lenders must offer existing customers the rates available to new customers, other than one off payments for stamp duty and legal costs."

I would prefer to see a statutory ceiling on mortgage rates. But I would settle for giving the CB the power to control rates. If they continue to promote banks ahead of consumers, then the legislation could be changed again.

If the CB has the power, it's likely that the lenders will reduce their rates to avoid forcing the CB to use its power.

Brendan
 
You must log in or register to reply here.
Back
Top