Central Bank nonsensical consultation on mortgage rate information

Brendan Burgess

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Central Bank proposes additional consumer protection measures for variable rate mortgage holders


  • 3-month consultation period on proposed additions to Consumer Protection Code
  • Bernard Sheridan: Proposals seek to increase lenders’ transparency
  • Measures proposed seek to extend notice period to borrowers of rate increases

The Central Bank is today proposing a range of increased protections for variable rate mortgage holders. The proposals, which are outlined in a Consultation Paper entitled ‘[broken link removed]‘, include the following:


Statement of factors impacting on the rate

Lenders would be required to prepare and publish a summary statement of the factors that impact on the calculation of their variable rate and their criteria and procedures applicable to the setting of such rates.


This summary statement would be provided to borrowers when they are offered a variable rate mortgage and made available on the lender’s website on an on-going basis. Lenders would be required to notify affected borrowers of changes to the statement and make available an updated summary on the lender’s website.


Information about other mortgage options

Lenders would be required to notify variable rate borrowers of alternative mortgage options available from their lender on an annual basis and also when notifying borrowers of an increase in the variable interest rate. This would include a link to the relevant section of the website of the Competition and Consumer Protection Commission (www.consumerhelp.ie) in order to assist consumers wishing to switch mortgage providers.


Notice of forthcoming interest rate increases

Currently, lenders are required to give at least 30 days’ notice of a forthcoming variable rate increase. The Central Bank is consulting on the need for a longer notification period for rate increases in order to give borrowers more time to consider their options and switch to a different product. The Central Bank is also consulting on a proposal to require the lender to state the reason for the rate change.


Director of Consumer Protection, Bernard Sheridan, said: “We believe there is scope for increasing the level of transparency of mortgage rates. The measures we are proposing today are aimed at increasing transparency and facilitating consumer choices.


Taking out a mortgage is one of the biggest decisions a consumer will make in their lives and it is essential that they can deal with regulated lenders with confidence, that the process is transparent and their interests are protected. In the case of variable rate mortgages, this means lenders must be clear with the borrower about the variable nature of the loan and the factors that might cause that rate to change. They should also give borrowers sufficient notice and information to enable the borrower to switch to a different product where they wish to do so.”


Submissions to the consultation paper, along with comments and queries, can be made by email to [email protected] and the closing date for submissions is 12 February 2016. All submissions will be published on www.centralbank.ie.


ENDS
 
We have just issued this statement in response:


Statement from the Fair Mortgage Rates Campaign on The Central Bank’s [broken link removed] for variable rate mortgage holders



These proposals are complete nonsense and only serve to underline the Central Bank’s complete lack of understanding of the reality of the mortgage market in Ireland. The proposals will be of no help whatsoever to mortgage holders who are paying twice the rate being charged in other Eurozone countries.

Tinkering about with such nonsense proposals prevents the Central Bank from addressing the real issues.

The Central Bank would be far better employed taking action against KBC Bank and Bank of Ireland for not offering existing customers the rates they offer to new customers. This is probably in breach of the existing Consumer Protection Code’s requirement to treat customers fairly. The Central Bank could take this action to help consumers without any need to change the CPC.

The Central Bank continues every month to publish [broken link removed] claiming that the average mortgage rate for new business in Ireland is 3.15%. Bizarrely, they continue to treat tracker mortgages as new business although no new tracker mortgage has been issued in Ireland since 2008. Most first time buyers borrowing over 80% are paying rates between 3.65% and 4.5%, yet the Central Bank continues to mislead the public and the ECB that the average rate is 3.15%. And captive customers of the likes of Danske Bank are paying 4.95%. Nothing that the Central Bank is proposing will bring down these rates.

The only way to prevent consumers from being ripped off is to put a cap of 3% above the ECB rate on mortgages. That would benefit new borrowers but it would also protect the 150,000 or so existing borrowers who can’t switch lenders due to negative equity or arrears.

Statement of factors impacting on the rate

This will be very easy for lenders to comply with. All they have to do is say that these higher rates are necessary to ensure the profitability of the bank, an explanation which the Central Bank has already given in their report [broken link removed]



Information about other mortgage options

Again, more absolutely pointless bureaucracy. It will be particularly insulting for the 150,000 borrowers who can’t switch lenders to be told that mortgage rates are much lower with other lenders.

Notice of forthcoming interest rate increases

We have been used to a long period of falling and stable ECB rates. When rates begin to rise, lenders might not pass on the full increase until they see how the ECB rate changes and how the other lenders react. If a lender is obliged to give, say, 90 days’ notice of an increase, they are much more likely to increase the interest rate by more than necessary.



Brendan Burgess of the Fair Mortgage Rates Campaign said today “The Central Bank should scrap this consultation paper. They should scrap their opposition to setting a cap on mortgage rates. And they should enforce the existing Consumer Protection Code properly to make sure that all lenders make new products available to existing as well as new customers”
 
If implemented, the proposals in this Consultation Paper will actually make things worse, not better, for variable rate borrowers.

Firstly, if lenders are required to give three months' notice of any rate changes, they will have to build in an additional buffer or pad to their rates to protect themselves from any future spike in their cost of funds that they cannot react to quickly by way of a rate increase. This will incentivise, if not actually require, lenders to defer passing on decreases to their costs to their customers and will result in higher rates in aggregate.

Secondly, complying with any new compliance requirements comes at a cost and any additional costs, ultimately, have to be borne by bank customers. These additional costs cannot be passed on to borrowers with fixed rate mortgages or trackers and there is minimal room to further reduce deposit rates. So that leaves variable rate borrowers to pick up these costs. In any event, the additional compliance measures of producing meaningless policy statements and furnishing borrowers with details of options that are already widely published are completely pointless. Simply adding to bureaucratic compliance costs achieves nothing.

Another epic fail from our Central Bank.
 
Could not agree any more Brendan, complete and utter nonsense from the central bank.

Yet again a further waste of tax payers money. Time for them to grow some back bone and enforce the consumer protection code.
 
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Niall Brady writes about it in today's Sunday Times which summarises it well

Transparency can only be a good thing in financial services but what if the information you get is worthless? The Central Bank’s latest contribution to the mortgage pricing row is a proposal that lenders should have to explain how variable rates are set. This is unlikely to reveal anything new.


In research published last May, the Central Bank told us why Ireland has some of the highest variable rates in the eurozone: bad debts, difficulties repossessing properties when loans go bad, tracker mortgages that are barely profitable, a lack of competition, the high cost of funds.


Lenders would simply recycle this list, probably without referring to the absence of competition, if required to justify the cost of variable mortgages in writing. Knowing why you are paying over the odds does not sweeten the pill — no matter how sound the explanations.
 
2 litres of milks sells for around €2. It costs around 80c. Imagine if retailers were contractually obliged to sell milk to a section of society at (say) €1 for 2 litres. And if, as a result, they were selling it to the rest of society for €5 to make up for their loss of margin.

What would happen? Someone else would enter the market and/or the State would intervene and put a stop to it.

Yet in this instance the State does nothing and tries to block new entrants (e.g. credit unions). And arguably, as a shareholder in the banks, the State is utterly conflicted with regard to making such decisions.

This matter should be taken up at EU level. Part of the EU's mandate is to eliminate anomalies like this. If Mario in Turin can borrow at 2.5%, then Sean in Cork should be able to also.
 
Gordon Gekko - could not agree more. There is a clear market failure whereby one half of the customers have to pay at 4-5% rate and in effect subsidize another half contractually at the rate of 1%, just like in your milk example. Or if one cohort of workers hired before 2008 had contracts that mandated 2x salaries in contrast to a cohort hired after 2008 - how long it would have lasted before the courts looked into it.

Instead of starting from a premise that this situation is clearly abnormal and nonsensical (to all who are not on tracker mortgages - but even they would have to admit it is abnormal if they had different contracts) and therefore has to be corrected somehow - the government and the banks start from the premise that this situation has to be explained better, why the rates are so high. Hence the new initiative - to explain better why Sean 1 in Cork pays at 4.5% while Sean 2 also in Cork pays at 1%. Or compare products - but the information is already there: http://compare.consumerhelp.ie/Mortgage

Could not agree more on what Brendan Burgess said re possible cap on rates and enforcing equal protection of new and existing customers. Disappointing start for a new CBI governor.
 
Information about other mortgage options

Again, more absolutely pointless bureaucracy. It will be particularly insulting for the 150,000 borrowers who can’t switch lenders to be told that mortgage rates are much lower with other lenders.

You know what's amazing about this is that Ulster bank no longer has all it's rates on it's website, you have to apply for a mortgage change document to find out. And rates in relation to offers change all the time. So good luck with banks knowing the rates of others at the precise moment they send out letters.

And it's also total nonsense because it's no good comparing your rate with another, like you would with a carton of milk or a car price, you don't have the choice to shop around as some banks may not take you and there are massive costs to switching and it's also a nightmare switching. (and yes I've switched twice)
 
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I think nobody expects the banks to have social obligation for the past misdeeds now, we got the message, the government should have thought of the appropriate clauses to insert when such banks were bailed out. We can go on and on about prudential management in 2002-8 or that people only borrow what the banks are willing to lend – but what is the point, endless discussion.

We all probably agree on this thread that the recent CBI consultation is useless, that the government should do more about overcharges on the SVR customers who consume the same product as those on trackers. If a speedier and inevitable repossession would do the trick – fantastic. There is this guy who lives in a similar house to mine and the rumor has it he has not paid his mortgage for almost four years now and is still there, while I pay close to 2K per month on an SVR. I begin to feel like an idiot. If some kind of cap over the average rate on the existing banks - excluding new entrants – would do the trick – fantastic. My point is if you start from the premise why the current rates are high in Ireland, you come up with plenty of reasons. You start from looking at the difference between trackers and SVR in the same economy, you realize it is abnormal and something needs to be done.
 
If implemented, the proposals in this Consultation Paper will actually make things worse, not better, for variable rate borrowers.

Firstly, if lenders are required to give three months' notice of any rate changes, they will have to build in an additional buffer or pad to their rates to protect themselves from any future spike in their cost of funds that they cannot react to quickly by way of a rate increase. This will incentivise, if not actually require, lenders to defer passing on decreases to their costs to their customers and will result in higher rates in aggregate.

Secondly, complying with any new compliance requirements comes at a cost and any additional costs, ultimately, have to be borne by bank customers. These additional costs cannot be passed on to borrowers with fixed rate mortgages or trackers and there is minimal room to further reduce deposit rates. So that leaves variable rate borrowers to pick up these costs. In any event, the additional compliance measures of producing meaningless policy statements and furnishing borrowers with details of options that are already widely published are completely pointless. Simply adding to bureaucratic compliance costs achieves nothing.

Another epic fail from our Central Bank.

Hi Sarenco

Any chance you would make a submission to this effect? The CB is so arrogant that they won't see this. It might help if a few of us make the point.l

The deadline for submissions is this coming Friday.

Brendan
 
2 litres of milks sells for around €2. It costs around 80c. Imagine if retailers were contractually obliged to sell milk to a section of society at (say) €1 for 2 litres. And if, as a result, they were selling it to the rest of society for €5 to make up for their loss of margin.

What would happen? Someone else would enter the market and/or the State would intervene and put a stop to it.

Yet in this instance the State does nothing and tries to block new entrants (e.g. credit unions). And arguably, as a shareholder in the banks, the State is utterly conflicted with regard to making such decisions.

This matter should be taken up at EU level. Part of the EU's mandate is to eliminate anomalies like this. If Mario in Turin can borrow at 2.5%, then Sean in Cork should be able to also.

Hi Gordon

Again, this point is worthy of submission.

I will definitely be making this point. That the CPC should oblige lenders to make new rates and deals available to existing customers.

Brendan
 
Brendan,
I am sure a lot of consumers are delighted that you singularly point out to Mr Central Bank , obvious chinks in their methodologies.

Maybe it is time to (OUT) these boyos for their ongoing arrogance and ineptitude .
They get away with pretence of consultations etc . hrrrrrrr!!!!
Worse they use the Burgesses of this world to give them cover.
(in case you ask , I do not trust them atall )
 
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