Tensions are High in the Mortgage Market

This post is in reference to It’s time to shout ‘stop’ on excessive charges by Brendan Burgess and Banks warned over cashback mortgage deals by Donal O’Donovan. Both published on June 16 2017 in the Independent.

Interest rates are high for non-tracker mortgages and banks are offering cashback deals to manipulate customers.

Everyone is accusing everyone today in the mortgage market in Ireland with interest rates the highest in the European Union. The Competition and Consumer Protections Commission (CCPC) have sat idly by for the past years as the interest rates are rising when the CCPC is designed and paid by the taxpayer to protect the consumers. CCPC came out with a report yesterday stating Ireland needs more competition, long-term strategy, vision and more committees. No suggestions in the report have a solution for the short-term.

The Government, Central Bank, and the CCPC wants everyone to be patient and the competition with drive down mortgage rate… but how long from now? Government and the Central Bank have been saying this for the past three years and nothing has changed.

Now Ireland has to count on Michael McGrath’s bill being passed in the Dáil. This bill will stop lenders from gouging existing customers by charging existing customers more than new customers. Lenders will be forced to pass rate cuts to new and existing customers with this bill.

The CCPC gives warning to the banks to stop using cashback deals and loyalty discounts offers to compete for new mortgage customers. Cashback deals and loyalty discounts can be seen as just competition rising but also can have bad effects on the customer. An offer that has become popular is offering customers a fixed percentage of their loan at the start of their mortgage.

These deals can encourage people who are not ready for a mortgage yet but want to take advantage of the deal. It could also trick customers into paying more for a loan than needed. This can be a repeat of the past with a danger of solvency of the banking system which in turn will affect the economy.

The CCPC report called for the mortgage lenders to move to more fixed rate mortgages and more transparent pricing.

Also, in the CCPC report they found that Ireland banks have great difficulty repossessing homes after borrowers default on their mortgages. This is a significant cause of the high cost of Irish credit since Ireland’s interest rates are the highest in the European Union. The CCPC report also stated that high default rates can also be a cause for increase of prices.

These problems in the mortgage markets are causing tensions to be high. A thing to watch out for is the banks response to the warning from the CCPC.

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