The banks’ meagre response on reducing morally unjustifiable mortgage interest rates

More meaningful actions required by the Government

Minister for Finance Michael Noonan set a deadline – July 1st – for the banks to clarify their intentions about lowering their standard variable mortgage rates for their 300,000 or so customers. The banks' response however, has been minimalist. Most of the six main mortgage lenders have said and done very little. They have largely ignored the Government's concern.

AIB, which the State owns, did cut its standard variable rate to 3.9 per cent – the second such reduction since December. And Permanent TSB now proposes to allow its variable rate customers to pay a lower loan rate – starting at 3.7 per cent. But whether an existing borrower can access this new rate will depend on both the size of the outstanding loan, and the value of the property. Bank of Ireland has simply said the matter of a lower loan rate remains under active review, while the other banks have kept their counsel, and said nothing.

For the Government, this attempt at friendly political persuasion to influence the banks has met with little success. Its initiative has been rebuffed, so what can the Government do now? Taoiseach Enda Kenny told the Dáil this week that it was "not morally justifiable" for the banks to charge mortgage payers so much – given the wide differential between the mortgage rate and the European Central Bank rate, now at a record low level.

For the domestic banks, so recently in a distressed state and struggling to recover, the financial – rather than the moral – imperative is seen to take precedence. Mr Noonan has not dismissed the idea of raising the bank levy should the banks fail to act and the Taoiseach suggested that action will be taken unless the banks move first. The Government could also legislate to give the Central Bank a role in capping interest rates – a power the bank does not wish to exercise. To date the Government has spoken softly, while carrying a big stick – something it may well be forced to use in the October budget, if the banks’ remain as unresponsive to its legitimate concern.