Transcript of Governor Honohan's comments on mortgage rates to the Oireachtas Finance Committee

Thanks for the transcript, Brendan, but I don't see any movement on this other than Honohan's circular argument. He has admitted that we own the banks but are currently powerless to stop them ripping of their customers.
 
I listened back to Honohan's presentation.

I thought Sean Fleming was very poor (i) He made a raft of pointless statements, (ii) He had a very aggressive attitude to Honohan.
He was purely playing to the cameras. His opening question was a 5 minute ramble about all the ills. Questioning QE and its impact on fueling a credit boom (is Irish credit not decreasing year on year)?

There was another line of questioning put to Honohan by Arthur Spring (I think) complaining that the Banks weren't funding development work. Honohan responded that the developers needed more equity now yet Spring seemed to suggest the Bank's should ignore that and go back to the good old days of nearly fully funding developments (in the public interest???).

The most interesting takeaway's from the presentation I felt was the emphasis Honohan made when discussing:
  • The trackers - He noted that the Bank's aren't funded anywhere near the ECB rate,
  • The issue with repossessions. The impact this has on potential new competition. The fact that Irish mortgage lending now merits a significant increased risk premium.
  • The fact the Central Bank should not control interest rates - he was categorical when he stated this.
  • He also pointed out that politicians had no place in setting interest rates. He made a good analogy - in a quorum such as the finance committee where would pressure ever come from for an increase in rates? I thought this comment very funny.
Overall, I don't think there was much in it that your posters here wouldn't have expected.
 
They are interesting poiints which seem to provide a logical rationale for why pricing of variable mortgages is at an elevated level in Ireland when compared to EU average rates. It appers that possession and sale of mortgage related security in Ireland takes far too long. The fact that the process takes 4/5 years at least suggests we have several years to go with higher mortgage rates. Based on recent Central Bank statistics, there are in excess of 107,000 'Private Dwelling Home' and over 33000 'Buy to Let' mortgages in arrears. This must substantially increase Bank funding, capital, and operating costs that then need to be recouped through mortgage pricing. Of the BTL mortgages in arrears, 50% of these more more than 1 year, yet there are only 654 repossessions. PDH picture is not dissimilar with only 1695 repossessions. As long as this quantum of non-performing loans remains unresolved on Bank balance sheets the cost of mortgages for Irish consumers as a whole will suffer. Politicians would be far better off focusing on ways the legislative/ court/ debt resolution process may be improved rather than having a go at the Governer of the Central bank for trying to bring some fact based evidence into the debate.
 
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Andy 836,

I think there is some light for borrowers stuck on high SVR mortgages from Governor Honohan's remarks:

"Under these circumstances, the SVR borrower’s main protection is competition: the fact that, by setting its SVR rate too high, any bank stands to lose business (whether new business or switchers) to competitors. Whereas this protection was effective pre-crisis, the level of competition currently is too low. Ensuring that official policy does not inadvertently deter competition and entry of banks to the market is thus vital for the long-term health of the economy.

The Central Bank wrote to each of the banks in February to ask for a clear statement of each bank’s pricing behaviour around SVRs. In their responses, none of the banks have so far provided what I would regard as a clear and quantified statement of their policy with respect to adjustments of the SVR interest rate .

In my opinion, good business practice of the banks would demand that they make upward adjustments to SVR rates only following clear and objective changes in prevailing business conditions (not only funding costs); good business practice would also call on them to lower SVR rates when the same conditions move in the opposite direction. To regain the trust of their customers, I believe that the banks should move to publishing a clear and quantified statement of their SVR interest rate policy. Since they do not seem to have such a policy, they will need to develop one. If necessary, drawing on its legislative powers for consumer protection, the Central Bank will codify such a requirement formally, but this should not be necessary."

There has been a deafening silence by the Banks in this Country to the Central Bank of Ireland's request for clear and quantified statement as to their policies with respect to SVR interest rates.

I believe Governor Honohan is putting the Banks operating in this Country on notice, that they must have a valid reason for charging the SVR interest rates that they do, to borrowers, otherwise that particular term in the contract, if challenged in court, could be deemed to be unfair. ( see SI 27/1995 schedule 3 (j) refers ).
 
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