At last, some necessary competition in the market

THREE years ago, this newspaper first exposed the massive rip-off that is variable mortgage rates in this country. In conjunction with consumer campaigner Brendan Burgess, we challenged the line then being put out by the Central Bank and the Banking and Payments Federation that mortgage rates in this market were similar to those in the rest of the eurozone.

We reported how the Central Bank was accused of misleading homebuyers after it emerged that new Irish mortgage rates were among the highest in Europe.

The revelation exposed how first-time buyers were paying up to €2,500 more a year for mortgages than their counterparts in France, Germany, Italy and Holland.

The article explained how the Central Bank had been forced to admit that mortgage rate figures it used to publish were far lower than a new buyer could get because they included existing mortgages that had been restructured, including thousands of low-priced trackers.

This eventually resulted in the Central Bank publishing more accurate figures on mortgage rates, ones that excluded cheap trackers, which were no longer available. It also led to the setting up of the Fair Mortgage Rates campaign by Brendan Burgess.

Fianna Fáil’s Michael McGrath’s Bill was passed in the Dáil to cap rates, but has never been enacted.

Not much else changed. Most banks did not reduce their rates as the McGrath Bill never became law and its rate-capping provisions were condemned by the Central Bank, the Competition and Consumer Protection Commission and the European Central Bank.

Left to their own devices, banks failed to cut rates.

It has been estimated that banks are making €1bn in super profits from their failure to cut variable rates, which affects some 300,000 residential mortgage holders.

Outgoing Bank of Ireland boss Richie Boucher even told TDs and senators that his bank would not cut variable rates, which are 4.5pc at his bank, and would instead only cut fixed rates.

Other banks failed to cut variable rates, with one exemption. AIB is consistently the only bank to do so. This strategy has reaped rewards for it –its mortgage market share is the highest.

AIB’s latest move will likely spark reactions from its rivals. They will simply lose market share if they do not cut, and cut hard, their home-loan lending rates.

What this means is that we could finally be seeing the mortgage market opening up to real competition – three years after we exposed the fact that we have the highest variable rates in Europe.

Up to now, we have had a false market, with cash-back and other incentives, and cuts to fixed rates only.

The AIB reduction is truly significant. Let the real mortgage war commence.