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Finance Minister should seek reduction of penalty charge for homeowners moving to variable rate mortgages

18 March, 2009 - by Aengus Ó Snodaigh TD

Sinn Féin Housing spokesperson Aengus Ó Snodaigh TD has criticised the Minister for Finance Brian Lenihan after he refused to take steps to ensure that banks change the penalty system they impose on customers who wish to change their mortgages from fixed to variable rates to avail of cuts in the European Central Bank rates.

Deputy Ó Snodaigh had raised this issue with the Minister in a Parliamentary Question but he refused to intervene.

Deputy Ó Snodaigh also called on the Minister to ensure that the banks are passing on the benefits of the cuts in European Central Bank interest rates to their customers.

He said, “The Government has a duty to ensure that the tax payer gets the maximum value for money for its bailing out of the banking sector.  If the penalties charged for moving from fixed to variable rate mortgages were substantially reduced, thousands of mortgage holders could benefit significantly from the current attractive European Central Bank rates.

“Given the current economic climate the Minister for Finance Brian Lenihan should ensure that the recently nationalised Anglo Irish Bank, and those banks that have been recapitalised at the expense of Irish tax payers, substantially reduce the penalties to allow more people move to the variable rate.

“In a climate of massive job losses and increased home repossessions this move would help thousands of struggling families whose hard earned taxes helped create the Celtic Tiger and have now bailed out the banks.  The move would also mean more money in people’s pockets and enhanced spending which is essential if job losses in the private sector are to be stemmed.

“The Government should also ensure that all Irish banks are in fact passing on the benefits of recent cuts in the European Central Bank interest rates to its customers.” ENDS

Note to editor: Question tabled by Deputy Ó Snodaigh and Minister Lenihan’s response follows:


To ask the Minister for Finance the steps he will take to change the penalty system imposed by banks on people with household mortgages who wish to change from a fixed rate mortgage to the variable rate to avail of more attractive rates; if he has discussed this matter with the banks over the past few months; if he will impose a change in banks now nationalised or recapitalised; and if he will make a statement on the matter.

- Aengus Ó Snodaigh.

*    For WRITTEN answer on Tuesday, 10th March, 2009.

Ref No: 10132/09


Minister for Finance ( Mr Lenihan) :

I have no function in setting interest rates. My function is to provide an appropriate legislative framework for regulation of the financial services sector.

The choice of mortgage product ultimately rests with consumers in light of their assessment of the terms and conditions that their lending institution offers. The decision of borrowers is influenced by a range of factors such as their personal preferences and their own assessment of the relative merits of fixed and variable rate mortgages.

Generally mortgages are for long periods. To some consumers a fixed interest rate on a mortgage offers peace of mind in that the borrower benefits from certainty regarding the cost of their mortgage, does not need to be concerned with changes in mortgage interest rates and accordingly he or she can budget more confidently.

Where a bank offers a fixed rate over a certain period it incurs additional costs in obtaining fixed or other funding in respect of the loan over the period. The additional costs will reflect both the market view in relation to future trends in interest rates for the period and the fact that longer term deposits generally attract higher interest rates than short term. In addition, if a borrower wishes to break a fixed interest rate contract prior to the end of the agreed term in order to change to a variable interest rate contract, it will generally result in funding costs for the lender concerned.  The lender in turn will seek to recoup these costs from the borrower. These funding costs do not require the Financial Regulator’s approval. However, the Financial Regulator’s approval must be obtained for any additional administrative type charges imposed on borrowers for breaking fixed rate contracts.

I have not discussed this issue with any representatives of the banks and I have no plans to seek to impose this requirement on any credit institution.

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