TENS OF thousands of variable-rate mortgage holders remain in the dark as to whether their lenders will pass on the European Central Bank’s interest rate cut.
The ECB reduced its key interest rateby 25 basis points to 1.25 per cent on Thursday, in response to the deteriorating economic outlook for the euro zone.
So far, Permanent TSB, KBC, Irish Nationwide (now part of the Irish Bank Resolution Corporation, formerly Anglo) and Bank of Scotland have indicated their intention to cut variable rates in line with the move.
However, Bank of Ireland, Allied Irish Banks and the Educational Building Society, which between them account for about 40 per cent of outstanding mortgages in Ireland, have failed to indicate if they intend to follow suit.
Banks are obliged by contract to pass on rate cuts to tracker customers, but maintain discretion over standard variable-rate loans.
Variable-rate mortgages account for 30 per cent of the Irish market, which corresponds to 207,000 mortgages. Of the variable-rate market, 50 per cent is held by the five lenders covered by the State’s bank guarantee: AIB, Bank of Ireland, EBS, Permanent TSB and the Irish Bank Resolution Corporation.
A Bank of Ireland spokeswoman said yesterday a decision on whether to pass on the rate reduction had not yet been taken, and declined to say when such a decision would be made.
AIB said its variable lending rates were under “constant review”. Its spokesman said the bank had not passed on ECB rate hikes earlier in the year, hinting that the rate reduction may not be passed on to its customers.
A spokeswoman for EBS said: “No final decision has been made about the impact, if any, of the change on the standard variable rate mortgage products.”
Ulster Bank has already indicated it has no plans to change its rate on the back of the ECB’s move. Similarly, Danske Bank-owned National Irish Bank said its variable rates were not set according to the ECB’s position because it sources its funds through Denmark, which is not part of the euro zone.
Yesterday, Taoiseach Enda Kenny said he would consider changing legislation if lenders failed to pass on the rate reduction.
“The [Financial] Regulator actually said some months ago that he would take action with banks if they didn’t pass on to consumers,” Mr Kenny said.
“I hope they do, and the regulator also said that in the event he wasn’t making headway with it he might seek support from Government, and we’ll wait and see how the regulator gets on.”
The Central Bank said it did not have the legislative power to require lenders to change their lending rates.
It said, however, it was concerned that some past rate increases had gone beyond the signalled ECB increases and were adding to the mortgage arrears problem.
The bank warned lenders to stop this practice or face new regulations on rate setting.
Paul Short of the Independent Mortgage Advisers Federation said it was “deeply regrettable” that some lenders were choosing not to pass on the rate reduction or stalling, which placed more pressure on mortgage holders.
Bank positions which will cut rate
AIB – Undecided
Bank of Ireland – Undecided
Bank of Scotland (formerly Halifax) – Yes
Education Building Society – Undecided
KBC – Yes
Irish Bank Resolution Corporation (Irish Nationwide) – Yes
National Irish Bank – No
Permanent TSB – Yes
Ulster Bank – No