Irish households with super-high variable-rate mortgages pay â¬ 1.2 billion more in interest each year as banks charge rates twice as high as the rest of Europe, new figures show.
And the interest differential is now so large that 300,000 variable-rate mortgages are “cheated” for an additional 1.2 billion euros in interest that they shouldn’t have to pay, the MEP Brian Hayes, former Deputy Minister at the Ministry of Finance. .
âThere are 300,000 variable rate mortgages, but this scandal affects 500,000 people. It slows down the Irish economy because the money that should be spent in shops and the economy at large is sucked up by the banks at exorbitant interest rates, âHayes said on Sunday. Independent.
Analysis of rates across Europe shows that an Irish family with a standard variable rate mortgage on a loan of â¬ 200,000 pays an average of 4.2 pc.
In the rest of the euro zone, the average interest rate is now only 2.09 pc.
âThis means Irish borrowers pay around â¬ 350 per month in interest more than they would pay if their â¬ 200,000 mortgage was in another country,â Mr Hayes added.
The interest rate for lucky clients with a tracker home loan is usually just over 1 pc.
Variable rate interest rates are expected to be challenged in court in the coming months.
Solicitors for New Beginning, the legal firm that provides legal advice to troubled borrowers, expects cases to be ready for court in a matter of months.
Ross Maguire SC of New Beginning says there are two types of variable rate interest overcharging cases that could form the basis of successful challenges in the High Court.
The first type of case is where the mortgage contract explains how the interest rate can vary.
“For example, it is said that the rate varies” according to market interest rates “, or” according to market conditions “, or is” directly affected by the rise and fall of the ECB rate ” “he told the Sunday Independent.
He cited the recent Millar v Danske Bank case where the loan document said the rate would vary “depending on market conditions” and elsewhere on its website the bank said the rate would vary “in line with the rates. of general market interest â.
The couple took the bank to court when their interest rate rose while, at the same time, the ECB rate fell.
The Millars first complained to the financial services ombudsperson who spoke out against them. They appealed to the High Court and the High Court ruled that the ombudsman was wrong.
Dankse Bank has appealed the case to the Court of Appeal and the decision is expected shortly. The result could be vital for thousands of households with similar mortgage deals.
âIf the Court of Appeal finds that the High Court was right, it will open up the possibility of many lawsuits against lenders who use this type of language in their documents. These lenders are mainly foreign banks and subprime lenders. “said Mr. Maguire.
The other potential avenue of legal challenge will concern Irish banks. Their mortgage contracts usually state that the bank can change the interest rate “at the bank’s sole discretion.”
Mr Maguire argues that European Union law says that a loan that allows a bank to vary the interest rate without a valid reason is “unfair” and unfair terms are not allowed.
âBorrowers may be entitled to reimbursement of the overcharged amount which could amount to thousands of euros for many ordinary citizens. We estimate the average amount of incremental costs in Ireland to be â¬ 3,500 per year and this has been going on for six years, “he said.
Mr Maguire said Thursday evening at a meeting of nearly 200 angry variable rate mortgage holders in Dublin that the best way forward was to proceed with a number of test cases.
âOne thing is pretty much certain – the banks will fight these cases tooth and nail,â he said.
Meanwhile, the Sunday Independent has learned that there are now serious concerns among senior levels of government about the impact of reducing the bankruptcy term to one year on credit unions.
The Labor Party has suggested that reducing the length of bankruptcy would force banks to make deals with homeowners who are struggling to pay off their mortgages.
Coalition sources involved in shaping the government’s emergency policy to tackle the mortgage crisis said the proposal to reduce bankruptcy duration from three to one year was “in the mix.”
However, there are concerns that the measure will not really punish the banks.
Instead, sources believe the proposal tabled by Labor MP Willie Penrose will force credit unions to write off the debts of those who go bankrupt.
“If we reduce bankruptcy to one year, we won’t end up punishing the banks because the banks will keep the house. The people who will be affected by this are the people who have unsecured loans, for example, the credit unions. , “a source told the Sunday Independent.
âThe backbenchers have been very clear about the need to protect credit unions. Do they really want to introduce a reform that will make credit unions lose on unsecured loans? the source asked.
The Coalition’s mortgage plan will include measures to give courts the power to veto banks’ decisions on debt deals.
Currently, homeowners have no recourse if a bank rejects a debt agreement.
The package is expected to go to Cabinet this week and loosen banks’ grip on personal insolvency service and allow more people to keep their homes. The government is also considering giving free legal advice to negative equity homeowners trying to strike deals with banks on mortgage repayments.