herald

Sunday 4 December 2016

If you think your mortgage is coming down - think again

Even by their own standards, the disdain shown by the banks to the Government's demands for cuts in variable mortgage interest rates takes some beating.

It now transpires that not one of the six major banks has cut variable mortgage interest rates in advance of the July 1 deadline set by Finance Minister Michael Noonan to review these rates.

Sure why should they? In its more than four years in office, this Government has consistently treated the banks with kid gloves. Despite having swallowed up to €64bn of taxpayers money and bankrupted the Irish state it seems that, when push comes to shove, the banks always prevail in any clash with the Government.

The case for a cut in variable mortgage rates is unanswerable.

The latest figures from the Central Bank show that the average variable mortgage rate in the first three months of 2015 was 4.13pc. This compared to the average interest rate for demand deposits of just 0.25pc.

What this shows is that the banks are ruthlessly fleecing homeowners with variable rate mortgages. The average spread, i.e. the difference between the interest rate the banks charge their borrowers and pay their depositors, on variable rate mortgages is now at 3.5pc.

That's daylight robbery pure and simple.

Now the Court of Appeal has, in its wisdom, put the boot into variable rate mortgage customers.

It has overturned last September's High Court ruling that the Financial Ombudsman ought to reconsider a case brought by a variable rate mortgage customer who objected to Danske Bank hiking its variable mortgage interest rate to over 4pc at a time when the official ECB rate was just 0.05pc.

deadline

The Court of Appeal's ruling has removed what was a small ray of hope for variable mortgage rate customers. Now all they have to fall back on is Mr Noonan's deadline, which very much looks like it will be exposed as pure bluff over the next week.

So with the Court of Appeal having overruled the High Court and Mr Noonan's bluff having been called by the banks, what if any hope is there for hard-pressed variable rate mortgage customers?

Unfortunately, the answer is almost certainly very little. The reason the banks can get away with charging such outrageous variable mortgage rates is because they can. The departure of most of the foreign banks, including Halifax and Danske, from the Irish market has removed any genuine competition.

Back in the noughties if a homeowner felt that their bank was giving them a raw deal on their mortgage they could always threaten to switch the loan to another lender. Not anymore. Now borrowers trapped in expensive variable rate mortgages have just two choices: take it or leave it.

What is the Government doing about this, apart from bending over backwards to accommodate the banks that is?

Not a lot would appear to be the answer. 'Deadlines' come and go but variable mortgage rates remain ridiculously high.

Things aren't going to get better anytime soon. After having been very low since the 2008 financial crash, all of the world's major central banks are getting ready to raise interest rates.

Fed chair Janet Yellen has already signalled that she will start raising US interest rates from next September. Here in Europe it's no secret that the Bundesbank is desperately prodding the ECB to push up Eurozone interest rates before the overheating German economy boils over.

Higher international interest rates will give the Irish banks even more opportunity to drag their feet on cutting their variable mortgage rates. If past experience is any guide they won't be a bit slow in grabbing that opportunity.

All variable rate mortgage customers can hope for is a gradual improvement in the economy will see huge margins earned by the domestic banks, serving to entice foreign banks back into the Irish market.

If this happened the resulting increase in competition may eventually come to their rescue. But don't expect a big cut in your monthly mortgage repayment in the meantime.

Promoted articles

Entertainment News