Banks accused of keeping variable rates “artificially” high

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Irish banks have been accused of keeping variable mortgage rates “artificially” high to increase their profitability.

Consumer advocate Brendan Burgess said the banking system here is “out of step” with the rest of Europe by offering new customers more competitive fixed-rate mortgages as forecasts predicted interest rates will remain low in the short to medium term. Typically, banks charge customers a premium for locking in from a low rate.

Mr Burgess was speaking after the Central Bank released its latest monthly monetary and banking statistics which show recent lending growth has been driven entirely by fixed rate loans, while variable rate loans have continued to decline .

The figures show that mortgage loans increased in net terms by 30 million euros in August and 1.1 billion euros year-on-year, or 1.5%.

Fixed rate mortgages for primary housing (PDH) continued to increase in the first half of the year, while PDH variable rate mortgages, which currently represent two-thirds of the homeowner market, continued. down.

“Most existing mortgages are at variable rates and these rates are artificially high – up to about 4.5% of the Standard Variable Rate (SVR) compared to an average of 1.54% in the euro area,” said said Mr Burgess.

New customers

“If lenders were to offer competitive variable rates to new customers, they would have to lower rates for existing customers as well. So they are competing for new business with lower fixed rates, ”he said.

“For example, an Ulster Bank customer who wants a variable rate would pay 3.9% but can fix for two years at 2.3%, while a Bank of Ireland customer would pay 4.5% variable but can fix for two years at 2.9 percent. hundred, ”he said.

Since the crash of late 2008, Irish banks have largely failed to pass lower interest rates on to floating rate customers, insisting that the higher rates reflect the high risk of lending in the Irish market. . In reality, the premium was there to compensate for the loss-making tracker portfolios.

While the “wedge” between rates here and elsewhere has started to narrow, the gap is still significant.


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