ECB hikes must not push people into mortgage arrears, Michael McGrath tells top bankers

Mortgage holders who are making a genuine effort to repay their loans must not be allowed to fall into arrears due to the European Central Bank’s (ECB) rate hikes, Minister for Finance Michael McGrath has told Ireland’s top bankers.

Mr McGrath was addressing a Banking & Payments Federation Ireland conference on Monday, with AIB chief executive Colin Hunt, Permanent TSB chief executive Eamonn Crowley and Bank of Ireland director of retail Susan Russell among those in attendance.

To combat inflation, the ECB has heaped pressure on mortgage holders by raising interest rates by 3.75 percentage points since last July, the most aggressive ramping-up of rates ever undertaken by the bank in its 25 years in existence.

Mr McGrath, deviating from his scripted remarks, said it was “widely expected” that the ECB would make a further interest rate hike when it meets later this week, a move he admitted would put households “under immense pressure”.

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“My message to you is that for people who are making a genuine effort to repay their mortgage, they should not be allowed to fall into arrears because of ECB rate hikes,” he said.

“It is important the industry works proactively to support people and put alternative repayment arrangements in place so they do not fall into arrears. We know the consequences for people when that happens.

“For people who are making a genuine effort – I’m not talking about people who are paying nothing – the vast, vast majority are making a genuine effort to pay what they can and they should be worked with and supported. We really don’t want to see the numbers in mortgage arrears moving in the wrong direction.

“I urge you all to consider the impacts on customers when deciding on your interest rate policy and I encourage you all to refrain from charging customers excess or punitive interest rates, particularly for those in most difficulty.”

[ Irish banks could push mortgage rates ‘significantly higher’ if needed – Goodbody ]

The Central Bank of Ireland estimates that about 38,000 borrowers are stuck in overpriced mortgages but can’t move back to mainstream banks, and Mr McGrath urged the bankers to “be receptive” to mortgage holders looking to switch.

The message was echoed by Central Bank deputy governor Sharon Donnery, who said consumers will be facing difficulties in dealing with rising prices.

“As you consider the passing-on of central bank interest rate changes to your customers, it is essential that their interests are at the heart of your decision-making and the approach you adopt,” she said.

Speaking after Mr McGrath, AIB chief Colin Hunt did not respond directly to his remarks, but said he was “conscious of the fact we are still in the early stages of seeing how the global economy is going to respond to an extraordinarily significant type of monetary policy”.

Fergal McGrath, the chief executive of Dilosk, which owns non-bank mortgage lender ICS Mortgages, said the “severe interest rate increase” was the latest challenge following the Greek debt crisis, Brexit and the Covid-19 pandemic.

He said the current climate of rate hikes has led to “more long-dated fixed-rate mortgages, up to 20 and 25 years, which is quite prevalent in the US but [for which] there wasn’t much demand in Ireland”. He put this down to a consumer thirst for certainty in the rate hike environment.

The Dilosk chief was also heavily critical of elements of the Irish mortgage market, branding the conveyancing process, which is the legal transfer of a property from one owner to another, as “very, very inefficient” and “in need a lot of work”.