Banks not so brave on bringing down mortgage rates

Central Bank deputy governor Ed Sibley did not hold back in criticising the bankers in their own backyard – at the Banking and Payments Federation conference on Tuesday. He accused them of lapsing banks into "pre-crisis" hubris and trying to rack up pressure to ease regulation. Was that in part a response to calls from bankers – notably AIB boss Colin Hunt – to ease the mortgage lending rules? Certainly the Central Bank does not seem to be for moving on these. And to rub it in, Sibley told the banks they needed to live up to their fuzzy marketing slogans, such as AIB's " backing brave", and work more with customers to restructure loans rather than selling than on to vulture funds.

If banks really valued their customers, Sibley asked, would they really charge existing borrowers more than the new borrowers they were trying to attract? Here, he was referring to the competitive trend in the marketplace which generally focuses on offering low fixed-term mortgage loans to new borrowers. These leave them paying interest rates – initially at least – much lower than many existing customers on standard variable rates.

This varies from bank to bank, but among the worst offenders are Bank of Ireland, with variable rates of up to 4.5 per cent, depending on the loan-to-value ratio of the customer, and Permanent TSB, whose rates go up to 4.2 per cent. There is certainly better value in the market, but many are slow to take the trouble to switch. But Sibley's point is valid – how can some banks lend to new borrowers for a few years at rates which can go below 2.5 per cent in some cases and charge existing borrowers so much more?

All this is in the context of overall average mortgage rates here, which are well above EU norms. There are other reasons too for this, of course, including the difficulty of repossessing property here compared to many other markets. But Sibley’s intervention shows that the Central Bank feels the banks are milking it in some areas of the market too.