THE CENTRAL Bank last night stepped up pressure on lenders to pass on yesterday’s European Central Bank (ECB) rate cut to “all” variable mortgage borrowers, although just two lenders to date have promised to do so.
Hundreds of thousands of homeowners on standard variable rates could benefit if lenders choose to follow the Central Bank’s advice, which followed an unexpected cut of a quarter of a percentage point in the ECB’s key interest rate. The decrease in the ECB rate will see the cost of a typical €250,000 tracker mortgage fall by about €32 a month.
The Central Bank’s comments urging lenders to pass on the cut, both to tracker customers and those holding standard variable rates, came after Minister for Finance Michael Noonan said banks should “obviously” pass it on.
Before an address to the Institute of International and European Affairs in Dublin, Mr Noonan said he hoped the cut would be the first of three. “I’m very pleased that they have announced it. I thought it wouldn’t happen for another month or so.”
So far just Permanent TSB and KBC have said they will pass on the rate reduction in full to variable and tracker customers.
In the case of Permanent TSB, this will benefit about 175,000 customers, including some 86,000 on standard variable rates, although the lender’s variable rates remain at the highest end of the spectrum.
Most other lenders said rates were under review, although Danske-owned National Irish Bank said while it would pass on the cut to tracker customers, its variable rates were not set according to the ECB’s position because it sources its funds through Denmark, which is not in the euro zone.
Lenders are obliged by contract to pass on rate cuts to tracker customers but cannot be forced to act on standard variable loans. Most lenders have substantially raised the cost of these variable products over recent months, citing the greater costs they themselves face in sourcing funds.
These increases have tended to go beyond the two rate increases implemented by the ECB this year, leading Financial Regulator Matthew Elderfield to voice concerns. Mr Elderfield is understood to be worried that the higher variable rates could cause existing problems with mortgage arrears to worsen.
In last night’s statement, the Central Bank acknowledged that while it did not have the power to force lenders to cut interest rates, it had called on them to stop applying rate increases that went beyond the cost of funds if they wanted to avoid new regulations in the area.
“Where lenders have previously increased rates to follow ECB actions, the Central Bank would expect all lenders to similarly pass through any ECB rate reductions to all borrowers, particularly where the lenders’ cost of funds have reduced as a result of the ECB decision,” the Central Bank said.