Thomas Lyons 
The Central Bank of Ireland has come under fire for its lack of action on high interest rates, particularly for customers of vulture funds who have seen their repayment costs skyrocket. According to the Central Bank, new early arrears cases have already started to rise. However, the regulator is not inclined to address high interest rates, as the policy of the European Central Bank is to fight inflation.
Gabriel Makhlouf, the Central Bank governor, has stated that it would be concerning if banks were to hold off increasing rates for an extended period, as it would suggest that monetary policy was not being transmitted to the wider economy. The Central Bank must answer why, when ECB rates were sliding over the past decade, Irish banks were charging some of the highest rates in the eurozone. The government is also showing little appetite for policing the mortgage market, which is particularly disappointing given that the new Finance Minister Michael McGrath was very effective when in opposition at highlighting the exploitative practices of Irish mortgage lenders.
There are stark differences between the protections put in place for rental tenants and controls on landlords, compared to the limited to no constraints on the power of banks to charge mortgage holders. If a tenant cannot afford their rent, the State can step in with assistance, but if a homeowner hits a bad patch, they are very much on their own. Falling into arrears can have serious consequences for a mortgage holder, such as damaging their credit record, limiting their ability to switch lenders or take out a loan elsewhere.
There is a strong case that mortgage holders deserve better protection from their banks, as there is very little competition in the market, with three main lenders dominating. Banks engaged in a variety of practices to stifle competition and confuse customers. For example, they offer special lower rates to attract new customers, but don’t allow existing customers to access them. They compete for new business on fixed rates while keeping variable rates artificially high, knowing that many customers will default to variable rates when their fixed rates end and they will be too busy or too ignorant to shop around for a better deal. One of the most insidious practices is luring new customers with cashback mortgages, which will cost the borrower over the next 30 years.
Moreover, some customers took out mortgages with a main bank only for their loans to be sold to vulture funds, and are now paying as much as 7% with no room to fix rates against future ECB rate increases. This is an area that the Central Bank and the government could tackle. Fairness demands that the government puts in place some basic protections for mortgage holders. To force lenders to compete on mortgage rates and on mortgage rates alone, lenders should first be prohibited from discriminating between new and existing customers. Any rates on offer to new customers should be made available to existing customers who meet the same lending criteria. Cashback mortgages should be banned and vulture funds should be required to offer customers the same rates as the lenders who sold the mortgage in the first place. Finally, the government must put in place a system to help borrowers facing repayment difficulties. Just like landlords, banks and vulture funds need to be reined in.
Brendan Burgess, a consumer advocate and founder of the consumer forum Askaboutmoney.com, has called for action to be taken to address the lack of protections for mortgage holders. With interest rates on the rise and early arrears cases already increasing, it is imperative that the Central Bank and the government take action to protect vulnerable mortgage holders from exploitation by banks and vulture funds.
