Banks face penalties unless variable mortgage interest rates are cut, warns Noonan
VARIABLE mortgage interest rates are to be cut or the banks will face extra levies from the Government.
Finance Minister Michael Noonan confirmed banks have agreed to start lowering their variable mortgage interest rates from July.
But he said he has the option of hiking the levy on lenders if they fail to reduce rates and said the Government could also enact legislation to give the Central Bank powers to regulate high variable rates.
Variable rates here are 4.27pc, almost twice as high as the eurozone average.
The Government is understood to be seeking reductions of at least 0.75pc in variable rates.
Such a reduction would see a family on a €250,000 mortgage saving around €1,200 over a full year.
There are indications that AIB and its subsidiaries EBS and Haven will now implement the third cut in variable rates in six months.
Other banks will either drop their variable rates, or offer to allow all customers to benefit from attractive fixed and (LTV) loan-to-value rates, instead of restricting these low-cost rates to new customers only.
Mr Noonan met with the bosses of AIB, Bank of Ireland, Ulster Bank, Permanent TSB, ACC and KBC this week.
The minister would not specify what rate reductions he wants, but he said he will haul in the main banks again just before October's Budget to ensure rates come down.
"The issue of a penal banking levy in the Budget or powers for the Central Banks to regulate interest rates will be considered at that time if sufficient progress is not made," he warned.
Reporting on his meetings with the six main banks, Mr Noonan said he secured agreement from them to review their standard variable mortgage rates and present options and products to help reduce the burden on homeowners by the beginning of July.
"I outlined my view, that standard variable rates being charged in the Irish market are too high. There was agreement from all lenders that customers should have access to more competitive mortgage products as per my recommendation," Mr Noonan said.
The gap between European Central Bank rates and the variable rates charged by banks here is too wide, according to the report published by the minister yesterday and prepared for him by Central Bank governor Patrick Honohan.
The report warned that measures to force banks to lower variable rates could have a detrimental effect on banks.
It said the reasons for high variable rates include credit risk, profitability and competition issues.
Fianna Fáil's Michael McGrath welcomed the publication of the Central Bank report on the influences on standard variable mortgage pricing and called for a stepping up of the campaign for mortgage fairness in Ireland.
He said the Central Bank report shows the mortgage market here is dysfunctional.