Bank of Ireland to begin tracker rate redress payments ‘in weeks’

Lender says it has ‘no plans’ to follow other lenders in selling non-performing mortgages

Bank of Ireland said it had identified 602 customers who had been wrongly denied a cheap mortgage that tracks the ECB benchmark rate. Photograph: Dara Mac Dónaill

Bank of Ireland said it had identified 602 customers who had been wrongly denied a cheap mortgage that tracks the ECB benchmark rate. Photograph: Dara Mac Dónaill

 

Bank of Ireland has said it will begin paying redress and compensation “within weeks” to more than 4,200 mortgage customers who had been overcharged, trailing rivals’ efforts to draw a line under a controversy affecting the industry for the past two years.

Speaking to an Oireachtas committee on Thursday, the head of the bank’s retail division in the Republic, Liam McLoughlin, reiterated that a review by the lender had identified 602 customers who had been wrongly denied a cheap mortgage that tracks the European Central Bank (ECB) benchmark rate.

The bank said in documents provided to the committee, seen by The Irish Times, that further 3,654 tracker-rate customers had been overcharged by an average of 0.15 per cent. That’s down from a figure of 3,916 accounts revealed by the bank last December when it highlighted the issue of some customers not being on the rate specified in loan documentation.

Compensation

“We have put the customers back on the right rate. Over the next number of months we will be engaging with those customers in terms of remedy and compensation,” Mr McLoughlin said, adding that the process “will kick off within weeks”.

The Central Bank ordered the State’s mortgage lenders to carry out an examination in late 2015 of cases where customers had been wrongfully denied their contractual rights to an ECB tracker rate. The regulator estimates that up to 15,000 mortgage holders may have been affected across the industry.

Bank of Ireland, which put aside an initial €25 million last year to cover its costs in relation to the issue, is lagging behind its main peers in starting its redress scheme. At the end of June, AIB had written to and redressed about 2,900 of the 3,100 overcharged customers. Permanent TSB, the first lender to disclose a problem in 2015, said in June that it had redressed 92 per cent of 1,372 customers identified at that time. It is understood Ulster Bank began making financial amends to its affected customers earlier this month.

In 2010, Bank of Ireland carried out an initial tracker rate review, under the direction of the Central Bank, resulting in the remediation of about 2,100 accounts.

Mr McLoughlin said on Thursday that the issue of bank staff being blocked from reverting to tracker rates – understood to number about 1,800 cases – is the subject of “ongoing discussions” with the Central Bank.

Non-performing loans

Separately, the executive told the Oireachtas committee that the bank “has no plans” to sell non-performing loans (NPLs) as Irish lenders find themselves at the centre of ECB pressure to sort out the issue. AIB, which sold a portfolio of soured buy-to-let loans to Goldman Sachs earlier this year, has signalled that it plans to resort to further loan sales under efforts to cut its NPLs, while Permanent TSB hired consultants at EY this month to advised on sales of impaired mortgages.

Mr McLoughlin also said that house price inflation, which was running at an annual rate of 12.3 per cent in July according to the Central Statistics Office, would persist in the Irish market as supply continued to fall short of demand.

“There’s no doubt that there’s a significant supply shortage and a market like this, where there’s significant demand, employment numbers are rising, particularly in urban areas you will see house prices continue to rise until that supply issue is fully addressed,” he said.

The Bank of Ireland documentation submitted to the committee show that the bank lends a maximum of 50 per cent of the funding needed for land purchases for house construction and as much as 70 per cent of development costs.