Cantillon: Permanent TSB makes virtue of necessity

Permanent TSB can be accused of making a virtue out a necessity with the announcement of the "abolition" of the standard variable rate (SVR). All the banks, including Permanent TSB, had until Thursday to tell the Government what they planned to do about the differential between their SVRs and the underlying ECB rate, which seems excessive.

To Permanent TSB’s credit, it has gone one better and actually put its money where its mouth is. Whether the initiative lives up to its dramatic billing as the “biggest innovation in mortgage pricing for existing customers ever by Permanent TSB” is another question.

The cynic might argue that the managed variable rates (MVR) that are replacing the SVRs are just a reincarnation of good old loan-to-value mortgages.

Some – the bank does not say how many – existing customers will get a significant benefit and more importantly enjoy rates on a par with those offered to new customers.

They are the borrowers whose loans are less than 50 per cent of the value of their home and the ones who could most easily switch to another mortgage provider.

The borrowers who most need – as against necessarily deserve – a reduction in their rate will get the smallest benefit. Borrowers in negative equity get a 0.2 percentage point reduction, reflecting the fact that they will not be switching mortgage provider anytime soon. They will continue to pay some of the highest mortgage rates in Europe.

If this is the best the banks can do – and it may well be given the commercial constraints under which they operate – the Government may want to revisit the issue before the election.