Bank of Ireland ‘deliberately keeping variable rates high’

Bank of Ireland has refused to rule out selling distressed loans to vulture funds as its chief executive Richie Boucher said the bank was deliberately keeping variable rates high to encourage customers to switch to fixed-rate mortgages.

Mr Boucher also said it was “inevitable” that more homes would be repossessed in the coming years.

Appearing before an Oireachtas committee on Thursday, Mr Boucher admitted the bank's variable rates were high. He said this was a result of the bank's policy of encouraging users to move to other products.

"We are deliberately incentivising customers to switch to fixed-rate as we believe the current rate environment is abnormal," he told Fianna Fáil finance spokesman Michael McGrath.

Mr Boucher said the bank’s “carefully considered strategy” was aimed at ensuring certainty for both Bank of Ireland and its customers. He said it was inevitable that loan rates would rise in the future.

“If anyone is taking out a 20-year mortgage and they don’t believe rates will rise, I’d ask them if they should be making this investment. It is an unrealistic proposition,” he said.

“Every one of our existing customers could save money if they are on variable by moving to fixed rates. Obviously that ties them in but it can save them money and give them certainty.”

‘Last resort’

Mr Boucher also said that while it was unlikely that the bank would sell non-performing loans to vulture funds, he could not rule it out.

“I can’t give an absolute guarantee but our policy is to work out the challenged loans ourselves, he said, adding that repossession was “a last resort”.

“Repossession costs us money, is not good for our reputation and is something we try to avoid.”

However, he admitted that the bank would repossess more homes in the coming years.

“The level of repossessions is likely to increase, there is a regrettable inevitability about that,” he said.

Discussing a rise in mortgage approvals, Mr Boucher said he believed that just under half of all house purchases were still being made in cash. He said supply was still a big issue, as some developers had been frightened off by the introduction of tougher lending rules by the Central Bank early last year.

In terms of Brexit, Mr Boucher said the bank had not yet seen any impact from Britain's vote to leave the European Union.

“We have been surprised at the lack of real impact to date on Brexit. We did feel that it could happen, so spent a lot of time with customers in Border counties and those working in the hospitality and retail sectors on how they might be affected by currency fluctuations,” he said

“The impact has been surprisingly benign to date, though I do think there will be some negative impact to our economy.”