Bank watchdog now reluctant to ban mortgage cashbacks amid pressure

THE Central Bank has reservations about banning mortgage cashback deals.

There are fears that cashback deals are keeping mortgage rates artificially higher, and other concerns the offers mislead borrowers about the true cost of borrowing.

Some reports have suggested banks are preparing to pull cashback deals due to regulatory pressure.

Bank of Ireland, Permanent TSB and EBS offer cashback when mortgages are drawn down. The Permanent TSB 2pc cashback means a couple borrowing €300,000 get €6,000 at draw-down.

Consumer advocates argue that mortgage rates in this country, which are the second highest in the eurozone, would be lower if cashbacks were banned.

But regulators question whether rates would fall, and feel the cashback offers play an important role in helping dual-income first time-buyers who are aware of the risks, and likely to switch mortgage.

The cashbacks are useful for new buyers to buy the likes of a fridge for their new home, according to Central Bank sources.

Fianna Fáil finance spokesman Michael McGrath has threatened to use a mortgages bill, that is in the committee stage in the Oireachtas, to ban cashbacks.

Central Bank senior officials believe cashbacks should remain on the menu of mortgage options. They argue that they are particularly beneficial for those who switch their mortgages regularly.

Regulators feel there are more important issues to be addressed in the mortgage market, such as the cost of funds for banks.

Permanent TSB indicated recently it may be forced to stop offering cashbacks from the summer.

The Competition and Consumer Protection Commission has warned that cashback deals can be a trap. This is because lenders offering the incentive tend to have higher mortgage rates.

Asked for a comment, the Central Bank said it consistently monitored and reviewed consumer protection measures to ensure they remain appropriate and relevant in a changing financial services environment.