Banks cave in to rate-cut pressure (Irish Independent)

04 November 2011

Six leading lenders bowed to enormous political and public pressure yesterday and said they would reduce mortgage rates.

The average monthly saving for hundreds of thousands of homeowners will be between €50 and €150.

The banks caved in after they initially refused to confirm that they would pass on a 0.5pc reduction, when the European Central Bank cut its rates on Wednesday.

Borrowers with tracker mortgages automatically got the reduction, but those on standard variable rates had to wait to see if their lender passed on the rate cut, or pocketed the benefit themselves.

Yesterday, Ulster Bank, Bank of Ireland, EBS Building Society, Permanent TSB, National Irish Bank and IIB Homeloans said they would pass on the 0.5pc cut to customers with standard variable mortgages.

The cuts will also apply to Ulster's sister bank, First Active, and Bank of Ireland's subsidiary, ICS Building Society.

Bank of Ireland said it would pass on the cut from Monday, November 3.

Already, Halifax and AIB have said they would pass on the lower rates.

IIB Homeloans boss Tom Foley said the bank would pass on the full 0.5pc cut to its standard variable rate customers in early November. EBS said its customers on standard variable rates would also see their mortgages fall from November.

The move came as the exposure of taxpayers to the state bailout for banks shot up to almost €500bn, after the Government extended the bank guarantee to include six foreign-owned banks.

Ulster Bank, First Active, Halifax, Bank of Scotland (Ireland), IIB Bank and Postbank will now have all their deposits fully protected by the State. It takes to 12 the number of banks insured by the Government. However, a political storm erupted last night over the full cost of the extended scheme. Labour's Joan Burton claimed the true exposure for the taxpayer was a staggering €600bn.

The Department of Finance insisted the taxpayers' exposure was in the region of €495bn.

Ms Burton complained that the state bailout had been extended to the six additional banks without the Dail even seeing a draft of the conditions of the scheme.

The storm over interest rates blew up on Wednesday, when the ECB announced the unprecedented rate cut.

Opposition leaders had urged the Government to insist that banks pass on the interest rate cut to mortgage holders.

Labour's Eamon Gilmore said the relationship between the banks and the Government was now entirely different, and it was "unthinkable" that the banks would not pass on the cut.

Health Minister Mary Harney said that while liquidity was important to banks, so too were customers. She said she expected that the banks would pass on the cut.

Earlier, Mary O'Dea, consumer director with the Financial Regulator, said the regulator did not have power to compel banks to pass on the interest rate cut.

But the regulator strongly urged lenders to pass on the reduction.

Ms O'Dea said in a statement: "In so far as banks' cost of funding is reduced, we would expect, in a competitive market, that this would be passed on to customers."

Small business group ISME and the Consumers' Association demanded that the rate cuts be immediately passed on to consumers and small firms.

Irish Mortgage Corporation's Frank Conway said: "I don't think the banks had much choice. Banks want to avoid an uproar so most will pass the cuts on. It is good for homeowners, who will save around €100 a month."