Banks should not profit from mortgage payment break schemes, warns Taoiseach

Micheál Martin says Minister for Finance will be raising the issue with the banks

Raising the issue in the Dáil Labour leader Alan Kelly pointed to the clarification that 80,000 mortgage holders who had taken the payment break did not have to be charged interest once the amount was less than 1 per cent of the entire interest bill. Photograph: iStock

Raising the issue in the Dáil Labour leader Alan Kelly pointed to the clarification that 80,000 mortgage holders who had taken the payment break did not have to be charged interest once the amount was less than 1 per cent of the entire interest bill. Photograph: iStock

 

Taoiseach Micheál Martin has warned that banks should not profit from the payment breaks given to mortgage holders to help them during the economic crisis caused by the Covid-19 pandemic.

He was responding in the Dáil to Labour leader Alan Kelly who raised the issue of banks charging interest on the payment breaks.

This follows confirmation on Tuesday by the Central Bank that under regulatory rules banks are not required to charge interest for the duration of the breaks.

Mr Martin said Minister for Finance Paschal Donohoe would be raising the issue with the banks and reviewing it following clarification from the European Banking Authority (EBA) and comments by Central Bank governor Gabriel Makhlouf.

The clarification undermines what bankers told then taoiseach Leo Varadkar and Mr Donohoe in a meeting on May 11th that if interest did not continue to accrue loans would be considered to be in default, impacting on customers’ credit ratings.

The Labour party later introduced a private member’s motion to prevent banks charging penalties and surcharges and finance spokesman Ged Nash said the Government was being “skewered” on this issue.

He said there was “no obligation whatsoever on the banks to charge interest on the accrual of mortgage debt” during the pandemic.

He believed AIB and Bank of Ireland were doing so “simply because they can”, and he pointed to comments in a radio interview by a banking spokesman that “any interest break would have to be paid for by other clients”.

Minister for Housing Darragh O’Brien said the only mortgages he had control over were the Rebuilding Ireland homeloans. He said “there’s no interest being charged on them, nor will there be”.

Raising the issue with the Taoiseach, Mr Kelly pointed to the clarification that 80,000 mortgage holders who had taken the payment break did not have to be charged interest once the amount was less than 1 per cent of the entire interest bill.

The Tipperary TD said other European countries had acted on this and put in place certain strategies including interest rate payment breaks.

Over the lifetime of a mortgage this can add significant costs to mortgage holders, he said.

“What are your plans now, immediately to ensure that mortgage holders won’t be charged thousands of excessive euros?” he asked the Taoiseach.

“What are you going to put in place to prevent this from happening?”

The Taoiseach agreed that the European Banking Authority had clarified the situation in terms of the application of interest for payment breaks that people received from the banks.

He said that over 140,000 payment breaks have been issued including about 78,000 mortgage.

“So these have been popular initiatives that a lot of people have availed of and have found very helpful.”

He said the Minister for Finance would engage with the banks on this latest clarification from the Central Bank and the authority.

Mr Martin pointed out that the key issue about the pre-existing rules was about making sure that the credit-worthiness of individuals was not impaired by availing of these particular schemes to offer mortgage breaks.

“Another key principle at the outset was that banks should not profit from these measures.

“So the Minister for Finance will be actively engaging and reviewing this now in the light of the statement by the EBA,” the Taoiseach said.