Consumer authority has ‘serious concerns’ about efforts to cut mortgage rates

Ireland’s competition and consumer protection authority has “serious concerns” about efforts to cap interest rates on homeloans, as it believes it would limit competition to the “detriment of the very consumers that it wishes to protect”.

In its submission to the Joint Committee on Finance, Public Expenditure and Reform on the Fianna Fail-led Central Bank (Variable Rate Mortgages) Bill 2016, which aims to give power to the Central Bank to cap rates on homeloans charged by banks, the Competition and Consumer Protection Commission (CCPC) comes out strongly against the initiative. It says that giving the Central Bank the authority to impose lending rates on banks would likely increase both pricing and strategic uncertainty among existing mortgage providers "and most likely render the market less attractive to new entrants".

“Such uncertainty would result in less competition, higher costs and increased market exclusion for those on lower incomes and with less favourable credit scores overall,” the CCPC says.

The consumer protection authority also queries the appropriateness of allowing the Central Bank to act as a price regulator, rather than in its current capacity as a prudential and consumer protection supervisor.

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Instead, the authority wants the market to allow for increased competition.

The Central Bank has previously argued that the bill could also be “counterproductive”, arguing that higher rates in Ireland are a function of higher risk lending, while Minister for Finance Michael Noonan has warned that the bill is unconstitutional.

Consumer bodies however, have taken a different view.

The Fair Mortgage Rates Campaign, which has previously condemned the CCPC for failing to take action on the issue, points out in its submission to the CCPC, that the lowest rate currently available in Ireland is 3.1 per cent on a loan to value (LTV) of less than 50 per cent – but the average rate for all LTVs in the euro area is 1.72 per cent. As such, given the disparity in rates, it argues that Irish homeowners are paying around €800 million a year in excess interest.