Brendan Burgess
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Brendan Burgess: Mortgage holders also deserve protecting against sharp practices
Just like landlords, banks and vulture funds need to be reined in
www.irishexaminer.com
Interest rates have risen steeply and customers of the vulture funds, in particular, have seen their repayment costs rise sharply. Meanwhile, Central Bank figures show that new early arrears cases had already started to rise.
The regulator is not inclined to do much about high interest rates because the policy of the European Central Bank is to fight inflation.
Gabriel Makhlouf, the Central Bank governor, has said it would be concerning if banks were to hold off increasing rates for a long time, as it would mean monetary policy was not being transmitted to the wider economy.
The Central Bank must answer the question why when ECB rates were sliding over the past last decade that Irish banks were charging among the highest rates anywhere in the eurozone. The Government is also showing little appetite for policing the mortgage market.
This is particularly disappointing as the new Finance Minister Michael McGrath was very effective when in opposition at highlighting the exploitative practices of Irish mortgage lenders.
Compare some of the protections put in place for rental tenants and controls on landlords, with the limited to no constraints on the power of banks to charge mortgage holders.
If a tenant cannot afford their rent, the State can step in with assistance, but if a homeowner hits a bad patch, they are very much on their own.
Falling into arrears can be have serious consequences for a mortgage holder: Their credit record can be damaged limiting their room to switch lenders, or to take out a loan elsewhere.
There is a strong case that mortgage holders deserve better protection from their banks because there is very little competition, with three main lenders dominating the mortgage market.
For over a decade, banks engaged in a variety of practices to stifle competition and confuse customers. Banks have special lower rates to attract new customers, but they don’t allow existing customers to tap them.
They compete for new business on fixed rates while keeping variable rates artificially high, knowing that many customers will default to variable rates when their fixed rates end and they will be too busy or too ignorant to shop around for a better deal.
Most insidious of all is the practice of luring new customers with cashback mortgages. Falling for this trick will cost the unfortunate borrower over the next 30 years.
Then there are the customers who took out mortgages with a main bank only for their loans to be sold to vulture funds, and are now paying as much as 7% and with no room to fix rates against future ECB rate increases. This is one area that the Central Bank and the Government could tackle.
Fairness demands that the Government puts in place some basic protections for mortgage holders. To force lenders to compete on mortgage rates and on mortgage rates alone, lenders should first be prohibited from discriminating between new and existing customers.
Any rates on offer to new customers should be made available to existing customers, who meet the same lending criteria. Then, cashback mortgages should be banned.
Vulture funds should be required to offer customers the same rates as the lenders who sold the mortgage in the first place.
And finally, the Government must put in place a system to help borrowers facing repayment difficulties. Just like landlords, banks and vulture funds need to be reined in.