Banking representatives have sounded an alarm over being pushed to reduce interest rates, following a request by Taoiseach Simon Harris for a meeting to address issues of mortgage interest rates and other customer-related concerns. This comes in the immediate lead-up to the recent slash in ECB rates, anticipated to be trailed by additional cuts in the near future, a change from a lengthy phase of rate augmentations meant to conquer inflation.
Last week, in a communique to state’s primary banks’ leaders, Harris revealed his anticipation for interest rates to decline in the months to come. He stressed his understanding of the bank’s commercial autonomy in setting interest rates. However, like mortgage payees experienced the surge in their monthly rates, Harris said, he would like an assurance that the banks will reduce these rates promptly too.
Earlier this week, addressing journalists, Harris stressed the need for banks to implement the rate cuts as swiftly as possible. Conversely, the Banking and Payments Federation Ireland, a banking industry conglomerate, counteracted the rate cut announcement. They highlighted that the determining and lending interest rates is a commercial prerogative of each individual banking or non-banking lender in the market.
In continuation, the organisation’s CEO, Brian Hayes, a former Fine Gael’s minister of state, mentioned that it is legally incorrect, under stringent competitive rules, for lenders to hint any forthcoming pricing modifications, either to public or in private. It was noted that any suggestion implying automatic transfer of rate cuts would violate the set rules.
Finance Minister Michael McGrath maintained a measured approach on the topic, informing RTÉ that setting mortgage pricing is a business decision for the banks. He underscored the importance of treating customers with fairness and consistency, and echoed the sentiment that if interest rates have risen with ECB changes, they should conversely drop as ECB rates decrease. This he stated, was the key focus.
However, some governmental officials voiced criticism over the Taoiseach’s interference, arguing that his comments were remniscient of a pitch one might expect from the opposition’s finance spokesperson. The irate official chose to remain anonymous.
Nearly 200,000 homeowners are poised to profit from the European Central Bank (ECB)’s 0.25% rate cut, as banks anticipate transferring the reduction to tracker mortgage holders starting mid-month. This widely projected cut will translate to a monthly reduction of approximately €13 for each €100,000 of tracker mortgage debt. Consequently, a consumer with unpaid mortgage debt of €200,000 over 10 to 15 years will realise a monthly saving of about €25.
Experts in the industry have cautioned that the Frankfurt-based bank will likely adopt a conservative stance towards future rate cuts, an outlook echoed by ECB President Christine Lagarde. Lagarde emphasised the ECB’s commitment to bring inflation back to the 2% medium-term target expediently and pledged to maintain sufficiently restrictive policy rates until this objective is reached.
Darragh Cassidy, from the price comparison and switching site bonkers.ie, pointed out that the interest rate cut has been clearly signalled in recent months, leading many mortgage lenders to pre-emptively lower their fixed-rate mortgage products. However, Cassidy indicated that those on variable rates might have to wait slightly longer to see any positive effect, as main banks had only passed on a small portion of the ECB rate boosts to their variable-rate clients initially.
Cassidy also put forth that variable rates in Ireland were already quite steep, suggesting that banks might not be rushing to implement significant changes in the short term.