To cut a long story short, the banks are charging people hundreds of thousands of euros more than they should be. Shawn Pogatchnik has the scoop:
“Banks are hitting many mortgage holders with double the interest rate they need to be profitable, the Central Bank has warned in a stinging rebuke to lenders’ claims of putting customers first.
Deputy governor Ed Sibley told senior retail banking executives that customers had good reason to view their slogans with scepticism given that banks often “resisted doing the right thing”.
He criticised overly hasty sales of loan portfolios, as well as banks keeping “loyal customers” on more expensive mortgages.
He told the Banking & Payments Federation Ireland (BPFI) conference that banks should “proactively” offer the same lower rates to existing customers.
“Irish banks are determining that it’s profitable to lend at somewhere between 2.25pc and 3pc for new customers – but are continuing to charge 4.5pc for existing customers,” he said.”
These are, of course, the same banks who Irish taxpayers rescued to the tune of a whole generation’s worth of national debt, which will still be being serviced when each of us is snug and comfortable in the grave.
They are also the same banks who will have to be saved again, if and when they make a mess of it all. That day may not come for another fifty or sixty years, or it could come in the next ten years. But make no mistake, if these banks go belly up again, we’ll all be paying to put them back in the black again.
In that sense, Banks aren’t really like any other sector of the economy. If Super Value or Lidl or Aer Lingus were to flop, the Government would express some concern, make a half hearted attempt to find a buyer, but, ultimately, let them go to the wall. There are other supermarkets, and other airlines. But because the Banks are so central to our economic well-being, they simply cannot be allowed to fail.
And do you know what? To some extent, we have to live with that. There is an argument to be made that the pain of a total banking collapse would be so great that life with these guys, and our guaranteed protection of them, is a price worth paying. But doesn’t that come with some expectation of decency?
It’s a bit rich, frankly, to observe Banks that rely on the public to save them in the bad times fleecing that same public in the good times.
It’s not as if mortgage interest rates have no impact, either. It’s not like putting a penny on the price of diesel. Higher borrowing costs make it harder to build homes, and harder to buy homes (which in turn, depresses the market for new homes). At the same time, higher interest on borrowing is not remotely matched by interest on savings, which is practically non-existent. You get punished for borrowing, but you don’t get any reward at all for saving.
So what’s the solution? And might the answer lie, in of all places, Brussels?
The current absurd position, for a country so proud to be in a single market, is that it is for all intents and purposes impossible to obtain a mortgage from a bank based outside the state, because those banks will not accept Irish property as collateral. In other words, you can’t go to a Spanish Bank to get a mortgage because they will refuse to accept the deeds of the property you are buying. But in Spain, the average mortgage interest rate is 2.5% – fully 2 per cent lower than it is in Ireland.
2.5%, incidentally, is the same figure that the Central Bank says would be profitable for Irish banks.
That means, on a mortgage of €300,000 taken out over 30 years, an Irish person can expect to pay a monthly repayment of €1,520.06, but a person taking out the same loan in Spain (or in Ireland, with fair pricing) would pay €1,185.36, a saving of around €335 each month, or a saving of €120,000 over the lifetime of the Mortgage.
A change to EU law compelling banks to treat collateral from all EU citizens equally would go a long way to pushing mortgage costs down in Ireland, and driving more banking competition across the EU generally. Of course, it would also push up administrative costs for banks to some extent (A Hungarian bank might argue that if you default, it costs them much more to sell an Irish property than one in Budapest) but it’s hard to imagine that the overall impact wouldn’t be a positive for consumers, and consumer choice generally.
In the meantime though, Irish homeowners have little choice but to continue being fleeced, by the banks on one side, and the Government, to cover the costs of the banks, on the other.
You’d understand why people are angry about it.