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Mortgage moves contradict Irish Central Bank policy

Government intervention on standard variable-rate mortgages is a middle-class plea bargain that contradicts Central Bank policy on curtailing credit, a leading analyst has claimed.

Lowering standard variable rates will inevitably add further credit to the system by reducing the stress tests with which banks must comply, thus opening lending up to a larger proportion of the population, according to Karl Deeter of Irish Mortgage Brokers.

This would have the opposite effect of policies introduced by Central Bank which seek to limit the amount of credit available in the market, such as the loan-to-income and loan-to-value limits introduced last year.

“The problem is when you’re saying you’re doing things to keep credit under control, but then you’re making another rule that clearly loosens credit because it will lower the stress tests,” Mr Deeter said of the Government’s intervention.

“You’ve got to ask yourself, where’s the joined-up thinking in it? There doesn’t have to be joined-up thinking, you can just have random chaos but at least call it what it is.”

Finance Minister Michael Noonan is meeting with the country’s lenders in a bid to secure lower rates for variable-rate customers.

Some 300,000 mortgage holders are paying up to €3,300 a year more than borrowers across the eurozone as a result of higher standard variable rates despite record low ECB interest rates.

Last week, Permanent TSB executive Jeremy Masding said just 15% of the bank’s funding comes from the ECB — down from over 55% at the height of the crisis — and therefore isn’t particularly relevant.

Mr Deeter said pricing reflects risk and when Irish banks do not have the same funding model as their European peers, they have to set their rates accordingly.

He added that lower rates are available and criticised mortgage holders for not being proactive enough in seeking a better deal for themselves.

Mr Deeter also laid the blame at the Competition and Consumer Protection Commission which he said is supposed to encourage assertive consumer behaviour so as to foster greater competitiveness in the market place, which he claims the body has not done.

The commission said it is aware of the mortgage environment facing consumers and said that it provides information on its website,

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