Central Bank has no power to end two-tier mortgage market

The Central Bank has no power to compel banks to end the two-tier market on mortgage variable rates, its newly installed Governor Professor Philip Lane has admitted.

Prof Lane also told TDs and Senators that interfering in the contracts between a lender and borrower was not in the bank's power.

Speaking to the Oireachtas Finance Committee earlier this week, Fianna Fáil's finance spokesman Michael McGrath said many of the reductions in rates that have been announced over the past year are restricted to new customers.

Prof Lane said he understood that it appeared unfair.

But he added: "Banks have to be run on a commercial basis. We can discuss the issue about delivering competition in the banks, and we can discuss whether the existing high rates are likely to persist, but the Bank cannot interfere with the contracts between the lender and the borrower."

He said the Central Bank will look at ensuring the process for switching a mortgage to another lender is easier.

"But the issue of insisting that a bank treats new customers and existing customers the same way, that's not really within our power," he added.

Despite the huge difference in costs between here and the eurozone average, the Central Bank said last week that variable rates were down marginally in November.

Six main domestic lenders were twice dragged in before Finance Minister Michael Noonan last year in a bid to persuade them to cut their high variable rates. AIB and its EBS subsidiary responded with cuts.

Mr McGrath said more needs to be done by the Central Bank as the banks' rates are "unjustifiable".

"I think it is fundamentally unfair that the rate reductions are not being extended to the existing customer base across the banking system. You are a new governor and I hope that this is an issue that you will tackle," he said.

Figures from the Central Bank released last week showed first-time buyers here are paying €2,000 more a year for their mortgages than the equivalent in the rest of the Eurozone.

That is because the average variable mortgage rate is almost 2pc higher here than the average in the euro currency area. New home buyers are being charged an average borrowing rate of 3.96pc.

The equivalent euro rate is nearly half this, at 2.05pc.

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