Bankers failed to dilute mortgage rate clarity rules, letters show

Banking lobbyists failed this year to get the Central Bank to row back on key parts of its drive to increase clarity on how variable interest rates are set and changed.

While the Banking & Payments Federation Ireland (BPFI) wrote to the regulator in February saying it supported plans to force lenders to provide a “statement of factors” explaining how variable rates are set, it objected to it being inserted in letters of offer for new loans.

The correspondence has been published on the Central Bank’s website after the regulator issued its final measures over the summer, where it stuck to plans to make banks provide clear information when a loan offer is made on factors that impact on the calculation of variable rates.

The BPFI had said: “We propose that it is not possible to ‘future-proof’ the content of the statement . . . As an example, the requirements for additional capital buffers are adjusted in accordance with international developments, which are beyond the scoop of local mortgage lenders.”

Business costs

If banks were ordered to hold more capital against loans, this would increase their own business costs, which they would seek to pass on.

The BPFI correspondence also resisted the introduction of plans to make banks give reasons to borrowers for any change in interest rates.

“Firstly, this would be anti-competitive as regulated entities would effectively be disclosing to other regulated entities/other unregulated entities the specific reason for the interest rate movement,” the group said. “In addition there is generally unlikely to be a single reason for an interest-rate change. It may also be confusing to the consumer if an increase is passed on in one circumstance due to, for example, a market change but then on another occasion it is not passed on.”

The final rules, detailed on July 21st, said that where lenders increase variable-interest rates on mortgages they must outline the reason when borrowers are being notified. They must also say how this relates to the bank’s variable-rate policy statement.

Notification period

While the Central Bank had considered whether to extend a 30-day notification period lenders must give on variable-rate changes to give borrowers more time to weigh their options , it decided against doing so in the end. The BPFI had resisted extending the period.

However, the BPFI agreed with new requirement that banks notify variable-rate borrowers of alternative mortgage options that could save money, both on an annual basis and when notifying borrowers of an increase in variable costs.

Still, some observers, such as Brendan Burgess, founder of consumer website askaboutmoney.com, have said the new rules do little to protect borrowers as they continue face much higher rates than in the rest of the euro area.

Central Bank data published earlier this month shows that the rate on all new variable-rate mortgages was 3.11 per cent in July, compared with 1.82 per cent for the wider euro area.

Mr Burgess has argued that the new rules do nothing to protect existing borrowers, who are often on higher rates than new customers.