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Sunday, 8 August 2010

Good Reason Leprechaun Is The National Symbol...

The taxpayer saved the banks, so now they turn the screw on mortgage rates...

When the European Central Bank this week kept its key interest rate at one per cent, worried mortgage holders who are struggling to meet their repayments breathed a collective sigh of relief across euro land. Except in Ireland, that is. In Fair Eire, allegedly the land of a thousand welcomes, mortgage interest rates are actually going up.


Economists say the main message from the ECB monthly press conference last Thursday was that the first hike in official rates is a relatively comfortable amount of time away -- probably no earlier than late 2011. That gives most people space to put bread on the table, squirrel away some extra cash and pay off their credit cards.

Not so here, however, where public sector workers have seen their wages slashed and, as unemployment rises in the private sector, the public has watched helplessly as billions of euro of taxpayers' money has been used to prop up the banks.

Billions more of unpaid property developer loans are being transferred to the nation's bad bank, Nama.

There is good reason why the leprechaun is the national symbol here. He is a chancer that will fleece you as soon as your back is turned. He hops about, telling yarns about economic booms and pots of gold at the end of rainbows.


Speaking of which, there's been quite a few showers here of late, while Europe enjoys sunshine. No wonder Irish eyes are frowning.

Bank of Ireland will raise its standard variable mortgage rate by 45 basis points to 3.49 per cent on Tuesday. It will impact around 44,000 residential mortgage customers. The bank has already been recapitalised by the State to the tune of €3.5bn and is transferring billions of euros in loans to Nama.

The bank's latest rate hikes for its standard variable rate and other products are the second round of rate increases this year, but management says it won't increase mortgage rates again this year unless the European Central Bank increases its key rates.

This hasn't stopped it in the past -- but it's a small mercy for householders nevertheless.

"We're paying more to customers for deposits than we are receiving for mortgages," the bank's director of consumer lending Brendan Nevin said. He added: "While any increase is regrettable, we have no choice but to make this move to ensure we remain open for business and continue to support our customers and the Irish economy."

Regrets, they've had a few. The notion that Irish banks are all about supporting the Irish economy is a bit like saying that icebergs are all about supporting the Titanic.

Over-lending by banks here fuelled a dangerously overheating construction sector during the Celtic Tiger years that helped to effectively sink this once-booming economy.

Ciaran Lynch, spokesman on housing for the Labour Party, was not amused. He said: "These increases are unjustifiable when the underlying ECB rate has remained static. Banks are hell-bent on improving their revenue streams and are gouging ordinary families."

Finance Minister Brian Lenihan said he couldn't interfere with bank rate policies.

The hikes don't end there. Last Tuesday, mortgage lender and life insurer Irish Life and Permanent raised its standard variable mortgage interest rate by 50 basis points to 4.19 per cent--its third hike in 12 months. Its interest rate hikes affect about 80,000 mortgage customers. Again, higher funding costs, rather than bad management, were to blame.

And it's not over yet. Allied Irish Banks' managing director Colm Doherty said last week, when he announced the bank's first-half results -- a net loss of €1.73bn -- that AIB will also likely raise its variable mortgage rate by 50 basis points. AIB also received €3.5bn from the Government and the taxpayer gets it in the kisser. Again.

"I think, reluctantly, we're going to follow all the other banks in increasing interest rates," Doherty said.

He added: "The price we have to pay for deposits means we are losing money on mortgages. It's unsustainable and if we don't do something, we won't be able to continue to lend to the mortgage market."

And whose fault is that?

The EBS Building Society -- which also received State support -- increased its standard variable interest rate by 60 basis points on August 1, the third time this year it has hiked rates.

The EBS said: "Unfortunately, as there has been no relief in the cost of funds to EBS, this further increase is required." And no relief for customers either ...

The Government is setting up a five-year plan to help mortgage holders in trouble to agree new repayment terms with banks and building societies, a situation that can only be exacerbated by an environment with rising interest rates and a country whose unemployment that is creeping closer to 14 per cent.

It would be hard to find a worse time to hike rates.

Making the situation worse, more than 85 per cent of mortgages here are variable, according to the European Mortgage Federation, although others point out that this figure includes mortgages that track ECB rates. The Irish Mortgage Corporation says that makes Ireland one of the more "sensitive" mortgage markets in Europe.

Fine Gael TD Bernard Allen said: "It's vital that action is taken now to force the banks to make repossession the absolute last resort.

"If this does not happen, we could be facing a repossession disaster in this country, which could have major implications for any fragile economic recovery."

Or it could lead to headlines like: "Dermo fights for dis digs." Dermot Ivers last week threatened to use his own digger to bulldoze his house if sheriffs tried to repossess it. He boarded up the downstairs windows and barricaded himself upstairs.

Neighbours in the Co Wicklow town of Arklow cheered him on.

The banks lent aggressively to developers during the good times. The property market went belly up and the banks were bailed out by the State ... by taxpayers like Mr Ivers. Now, the same banks are hiking interest rates when the ECB doesn't.

For many homeowners already steeped in negative equity, pay cuts and job losses, it's the final insult.



Report by Quentin Fottrell - Sunday Independent

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