Brendan Burgess
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Here is a transcript of what Governor Honohan told the
One of the great inhibitors for the banks in lowering the standard variable rate is the fact that they look around and see inertia on the part of the borrowers who could switch. The Central Bank did a calculation and will probably publish something on it later on. We looked to see who could benefit from switching, given that there are spreads of rates. There is lots of information. Are there people who could benefit from moving to a lower-cost provider, bearing in mind that switching involves some costs, such as legal costs? Our people found that as many as 15,000 people could benefit a lot from the current rate. I am not saying that the current rates are even the lowest wherever they are for different circumstances and different loan-to-value situations. They are not particularly low, but even with the spreads that are there, there might be 15,000 people who, if they had the time to do the sums, could save a four-figure sum in a year.
I am not blaming anybody. We all know that we suffer from inertia and are not sure what is going to happen. It is the same with gas and electricity. If people were more savvy, banks would be more on their toes and we might see the rates go down, so I would encourage that. I am not in the blame game. I am encouraging more competition - competition from borrowers as well as competition between lenders. The lenders do not want to lower the rate if they do not see that they will get much new business from it. At the same time, they must bring down the rate on all of their back book because it is the standard variable rate. They have this huge back book, and they say: "Will we lower their rates? We will get more borrowers. Yes, that will be good." From a profitability perspective, the calculation is not as favourable as it would be in other circumstances.
One of the great inhibitors for the banks in lowering the standard variable rate is the fact that they look around and see inertia on the part of the borrowers who could switch. The Central Bank did a calculation and will probably publish something on it later on. We looked to see who could benefit from switching, given that there are spreads of rates. There is lots of information. Are there people who could benefit from moving to a lower-cost provider, bearing in mind that switching involves some costs, such as legal costs? Our people found that as many as 15,000 people could benefit a lot from the current rate. I am not saying that the current rates are even the lowest wherever they are for different circumstances and different loan-to-value situations. They are not particularly low, but even with the spreads that are there, there might be 15,000 people who, if they had the time to do the sums, could save a four-figure sum in a year.
I am not blaming anybody. We all know that we suffer from inertia and are not sure what is going to happen. It is the same with gas and electricity. If people were more savvy, banks would be more on their toes and we might see the rates go down, so I would encourage that. I am not in the blame game. I am encouraging more competition - competition from borrowers as well as competition between lenders. The lenders do not want to lower the rate if they do not see that they will get much new business from it. At the same time, they must bring down the rate on all of their back book because it is the standard variable rate. They have this huge back book, and they say: "Will we lower their rates? We will get more borrowers. Yes, that will be good." From a profitability perspective, the calculation is not as favourable as it would be in other circumstances.
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