Cantillon: can Noonan force the banks to budge on mortgage rates?

One of the joys of being in Government is that you can be working for weeks on one problem when suddenly another one pops up with even more political danger.

And so the Government has come out with its proposals to deal with mortgage arrears – the announcement was strangely unspecific given the amount of time senior ministers have been working on it – but is now wondering what to do to get the banks to cut mortgage rates.

Mortgage arrears affect a lot of people, with more than 100,000 homeowners behind on repayments. However, arguably many of these will be dealt with by schemes already in place. The new measures are meant to try to find a solution to the 30,000-plus in arrears for more than two years, and to stop others joining this group. It is an important issue and has the potential to cause a fair bit of political flak if repossession actions in court continue to build.

However, the standard variable mortgage rate problem is now probably even more of a political danger. Some 300,000 people are on standard variable mortgages and, unless they are customers of AIB, have not felt the benefit of any rate reduction.

Of course there is a link between the two issues. As Permanent TSB chief executive Jeremy Masding pointed out, the relatively high level of arrears here is pushing up costs, so the bank needs to keep rates higher.

Indeed, there is only a limited amount the Government can do on the vexed issue of mortgage rates. Minister for Finance Michael Noonan (left) will meet the bank heads next week. So far, AIB has moved, while the other main banks say they cannot afford to do so. The Central Bank has made it clear it does not want control of interest rates and says that, overall, the level of profit being made by banks is not excessive, when account is taken of their low-yielding tracker books.

The Government will try to push the banks in the hope that competition and the low interest rate environment eventually lead to some reductions for which it can claim credit. That’s politics in the year leading up to a general election.