Banks are given until July 1st to reduce their rates

Some 300,000 people with standard variable rate (SVR) home loans look set to benefit from reduced monthly mortgage payments from July.

Minister for Finance Michael Noonan met this week with the country's main six lenders – AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC – to discuss "the comparatively high standard variable rates currently being charged by the banks".

Mr Noonan said there was agreement from all lenders that customers should have access to more competitively priced mortgages. He said he had given the six banks until July 1st to make their announcements as to how they will reduce the cost of standard rate variable mortgages for customers.

“All of them in one way or another will offer an option to each holder of a mortgage to get a reduced rate,” said Mr Noonan. In some cases, this will involve a straight rate cut, but in others it might involve offering a lower fixed rate to a customer. “We’ll expect announcements from the banks in their own time between now and July 1st,” he said.

Publicity campaigns

Mr Noonan also wants the banks to conduct publicity campaigns to inform customers of their options in securing a lower rate.

He said there was a “growing belief” that the margin being charged by banks for standard variable rate mortgages was “too wide and that there is scope for a reduction”. He said the banks were “expected to make moves” but he was “not prescriptive” about the rates that should be charged.

The Minister reminded the banks that Senator Feargal Quinn's bill to give certain powers to the Central Bank to fix interest rates has been published in the Seanad, where the Government does not have a majority. Hewarned that a "severe, penal" bank levy in the Budget could be introduced if the banks don't reduce their rates and he would also consider giving the Central Bank powers to fix rates.

“As long as they move we won’t have to take further action,” Mr Noonan said, adding that it was in the interest of all the banks to “look after their customers”.

He said another rate cut by AIB, in addition to the two it has pushed through in the past six months, should not affect its profitability or damage the prospects of the State selling some of its 99.8 per cent stake to private investors.

“Happy customers make for profitable banks,” he said. “I don’t see any change in our intention or our policies about selling AIB.” In terms of the timing of a possible IPO, the first window would be late this year, “probably November . . . then a window will open up again in the Spring.”

Detrimental effect

The move comes as the Central Bank warned that measures to force banks to lower variable rates could have a detrimental effect on banks.

It said in a report published yesterday that while the spread between official ECB rates and the standard variable rates was high compared to that offered by other European banks, a number of factors were contributing to this, including credit risk, profitability and competition issues.