As many as 15,000 holders of standard variable-rate (SVR) mortgages could see their repayments fall by more than €1,000 a year simply by switching provider, the governor of the Central Bank has claimed.
Patrick Honohan said Irish banks knew there was "inertia on the part of borrowers who could switch". This had lessened any imperative for them to aggressively compete in the market by lowering their rates to gain and retain market share.
Mr Honohan told the Oireachtas finance committee that the Central Bank had in recent weeks looked through figures provided to them by the State's banks and found that there were up to "15,000 people who, if they had the time to get out and do the sums, could save a four-figure sum in a year.
“If people were more active in the switching market, it might keep banks on their toes and we would encourage that.”
While Mr Honohan said he would welcome interest rate cuts for SVR mortgage holders, he warned against any Government intervention that would force banks to lower their rates, saying such a move would damage the economy.
He had a “firm conviction that the administrative control of interest rates would be bad for the country as a whole. In the medium term there could be a case for Government intervention.” Such intervention would have “a stultifying effect on bank efficiency” and a “chilling effect” on bank competition”, he added.
Competition, he said, was borrowers’ main protection against banks inflating the interest rates. He said the level of competition in the banking sector at present was too low.
Mr Honohan was challenged by Fianna Fáil’s Seán Fleming about his reliance on “the god of competition” to protect borrowers from excessively high SVR mortgages. He reminded Mr Honohan that competition from overseas banks sparked a rate-price war that fuelled the boom and deepened the bust.
Mr Honohan conceded the point and said he wanted to “get back to a situation where there were five or six players who are competitors”. He added that you “can have too much competition as well as too little.”
People Before Profit TD Richard Boyd Barrett also challenged Mr Honohan on his
faith in competition to make the mortgage market fair.
“Control of retail interest rates is a kind of Rubicon,” Mr Boyd Barrett said. “It has a signalling value far in excess of what you might think”.
In reference to the recently introduced mortgage lending rules aimed at cooling the market, Mr Honohan said he was “not dissatisfied with subsequent developments”.
CSO figures for April show prices nationally rose by 0.6 per cent and are now 15.8 per cent higher than a year ago.
In Dublin, prices increased by 1 per cent last month, reflecting an annual inflation rate at 20.2 per cent.
