The Options for Ireland's Mortgage Market report by the Competition and Consumer Protection Commission (CCPC) suggests Ireland's mortgage market is dysfunctional. No surprise there. With six lenders holding over 700,000 mortgages, the Irish consumer perspective is clearly relevant.
This 158-page report sets out CCPC options for lowering the cost of secured mortgage lending, and improved competition and consumer protection. Switching mortgages is proposed as the best solution. But there is a significant lack of trust of lenders among consumers. The report also offers valuable proposals on non-recourse and long-term fixed-rate mortgages, as well as differentiating lending on the “family home” from investment mortgages. Those who use the family home as collateral for investment loans should face a fast-track repossession process – something at odds with global liberal economic paradigms.
While the report suggests that Ireland has the highest mortgage-default rates in the EU, the link with higher interest rates is spurious, based on conjecture, speeches and private wealth management reports. Indeed, the Fair Mortgage Rates Campaign has pointed out that Irish lenders have made full provision for arrears. If anything, legacy arrears are now enhancing their profits. Similarly, the report does not compare the structure of Irish mortgage markets with other EU countries. With 50 per cent of Irish mortgages on unprofitable tracker mortgages, surely the key question was how much are variable rate borrowers being fleeced. But the report only suggests reducing the regulatory protection of the Central Bank on increasing charges and commissions to act as compensation.
Non-performing loans Surprisingly, the effects of the European Central Bank
final guidance to banks on non-performing loans, of March 2017, now part of the Single Supervisory Mechanism, where non-compliance may trigger supervisory measures, is not considered. This shows impaired loan ratios for euro area significant banking groups are related to countries most affected by the crisis of 2008, including Cyprus, Greece, Ireland, Italy, Portugal, Slovenia and Spain. Significantly, the Money Advice and Budgeting Service submissions to the CCPC suggested the ability of the Central Bank to enforce non-compliance by mortgage lenders remains unclear.
Indeed, the commission received 20 submissions for the report, including one from Fianna Fáil. Two lenders (not Bank of Ireland or PTSB) asked for their identities and submissions to be fully redacted – yet some these submissions were quoted. Surely this is an extraordinary approach by EU standards. The report draws on ratings agency Fitch, as an authority on Irish mortgage repossessions – although their reports actually show future Irish mortgage arrears comparable to US rates, and a third of those in Portugal, Spain and Italy.
Consumer law
The CCPC is the State agency charged with protecting Irish consumers. Luckily, our consumer law arises from EU legislation – and we clearly need greater EU intervention here. For instance, the Unfair Contract Terms Directive (1993) corrects the significant imbalance in consumer contracts, such as mortgages, where the result is detrimental to the consumer. State agencies and courts across the EU, including the Court of Justice of the
European Union
, ensure the effectiveness of this protection. Spanish mortgage law has recently been examined in this context. Yet, this is not considered in the report – although Irish legislation since 1995 recognises home loan borrowers as consumers. This State consumer protection agency undertakes almost no action on unfair consumer contract terms. It is not a small NGO, but a fully resourced State agency, seemingly distant from democratic or public interest concerns.
Blaming consumers for over-extending their borrowing is a partisan approach. The report refers only to irresponsible borrowing, not reckless lending. Indeed, the focus on repossessions of distressed borrowers, criticism of courts and mistaken references to some European norms detract from the report. References to “foreclosure” (illegal since 2009) and “UK law” comparisons are interesting.
Overall, this report reiterates CCPC objections to the Central Bank (Variable Rate Mortgages) Bill, which sought to use Central Bank powers to cap standard variable rates. Whatever the “free market” concerns about that Bill, this report reveals the contradictions of subsuming consumer protection and competition policy into one State agency. It highlights the need for independent consumer organisation in Ireland, in the public interest. Surely, Irish citizens and consumers deserve more than such shoddy State reports on mortgage interest rates.
Dr Padraic Kenna lectures in law at NUIG