Has the Central Bank finally seen the light on mortgage rates?

Brendan Burgess

Brendan Burgess

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I have been tilting at this particular windmill for years now. I have met the Central Bank on a number of occasions and they have repeatedly refused to do anything about it. And while they claimed that Irish rates were "somewhat higher" they more or less claimed that these were justified.



Deputy governor Ed Sibley blew away the spin of the bankers yesterday when he dismissed the claims of banks and their apologies that they have no choice but to charge sky-high mortgage rates here.

Mortgage interest rates in this country are twice the average level for the eurozone.

....

Banks here blame the fact they are required to set aside more capital than their eurozone counterparts when they issue a mortgage, due to high default levels.

But Mr Sibley has smashed that excuse.

He described the Irish mortgage market as "dysfunctional".

The deputy governor said Irish banks can lend profitably while charging rates as low as 2.25pc to new customers, but still charge often unaware existing customers up to twice that level.

"It's also true to say that Irish banks are determining that it's profitable to lend at somewhere between 2.25 and 3pc for new customers, but are continuing to charge 4.5pc for existing customers. So before there's too much complaint about capital levels driving interest rates, which is a factor, they also need to look in the mirror and make a determination as to whether they're treating and delivering for their customers in way that's sustainable for both the new and existing customers," he said.
 
They do have to set aside more capital given the models they are approved to use. That is a fact, this is pointing out that they charge different rates between new customers and existing. The result would be the average of both. What about people on trackers? Should they then have to pay the same as new customers?
 
I think part of this challenge is back to why customers on the 3.5% plus rates have not switched providers at this stage. If it is due to LTV in particular, and those above the Central Bank guidelines of 90% or 3.5 times income, then they could be considered a higher risk than new customers who meet the Central Bank guidelines.

If its down to pure apathy, or lack of trust or whatever, then this is a matter and I am not sure what the central bank or anyone else can do on this right now. You cannot force people to switch mortgages if they don't want to.

Most, if not all, of the those who qualify as a new customer (Central Bank guidelines) can switch provider if they wish to do so. They have the power to change banks behaviour by switching, and if sufficient numbers do, the policy will change pretty quickly.
 
Given the difficulties and costs of repossession, the potential loss given default may be much higher than other markets. This further increases the capital required under the banks models. Effectively this pushes mortgage rates somewhat towards unsecured loan rates.
 
gnf_ireland said:
If its down to pure apathy, or lack of trust or whatever, then this is a matter and I am not sure what the central bank or anyone else can do on this right now. You cannot force people to switch mortgages if they don't want to.
Click to expand...

Exactly, I have seen several times people here on AAM with low LTVs who pay the default variable of their provider of 4.5%.

A phone call and a cost of a stamp would see them save them hundreds a month.
 
Central Bank are getting very mouthy...Hear the one recently where they talking about wanting conduct standards being enforceable by law and the head of financial conduct in a speach basically said they would be would be looking for an early scalp to make an example of if they get it...Frightening stuff....

You would swear the Central banks themselves have been the beacons of good ethical behaviour themselves.....They had to be dragged into investigating the tracker saga and yet they turn around and accuse the banks of having to be dragging into doing the right thing.. Brendan, AAM, some media/TD's did more on that than the so called regulator.
 
Am I wrong or could the CBI not require the same rates for new and existing customers at the stroke of a pen?

If so, why are they not doing that instead of blathering?
 
Maybe, from examining the Banking sector behaviors to date, the Central Bank is starting to see through their propaganda on mortgage rates and see it is nothing more than a money grab.
 
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