Kenny may compel banks to pass on mortgage cuts

Wednesday 05 December 2012 12.28
Kenny may compel banks to pass on mortgage cuts

The Taoiseach is prepared to consider legislation to compel banks to pass on interest rate cuts to consumers.

Taoiseach Enda Kenny has said he is prepared to consider introducing legislation to compel banks to pass on interest rate cuts to consumers.

This will force banks who are not passing the ECB cuts on to customers who are on variable rates to do so.

He said if the financial regulator came to him to came to the Government seeking legislative assistance, the Government would consider it in the interests of people who were clearly distressed.

However, he said they have to distinguish between those would can not pay and those who will not pay.

Last week Permanent TSB, KBC Bank and the Irish National Building Society, whose loan book is now being run by the former Anglo Irish bank,  said it would be passing the latest ECB cut on to its variable rate customers.

However Kenny's concern is that not all banks will do this as a matter of course, particularly as two more cuts are expected to follow last week's cut.

Some 400,000 of the 800,000 or so mortgage customers in Ireland are on tracker mortgages and will automatically see last week's 0.25% ECB cut rate passed on.

The Central Bank has urged all banks and building societies that increased rates in line with the ECB rates to ensure that borrowers benefit from the reduction as well.

The 0.25% cut will typically mean a €45 euro saving a month on a €300,000 mortgage.

The Taoiseach told the Small Firms Association that he will be calling in the banks next week to query why businesses have been unable to access credit. He noted that the banks had previously promised that €6 billion would be made available to lend to businesses.

Referring to last week's interest rate cut by the ECB, he noted that some months ago, financial Regulator Matthew Elderfield had recommended that rate decreases should be passed on to mortgage holders by the banks.

Speaking about the euro zone crisis, he said that there was a real palpable concern about a potential catastrophe. While he was not sure what would happen in Greece this evening, he hoped that a decision would be arrived at quickly and conclusively in the interests of the people of Greece and Europe generally.

He said that at a time of uncertainty and confusion, it was very important to have decisiveness and a calm approach about what to do to rectify the problems - as they had implications not just for Ireland but for all countries.

Last month Mr Elderfield warns the bailed out banks to stop hiking rates - telling them that if they pushed people into default or redundancy they were merely adding to the public burden.

As the banks are not able to finance themselves, more mortgage debt would merely mean they would end up going to the tax-payer for a further bailout.