Banks charge house buyers to keep money
People waiting for sales to go through forced to pay interest – but Donohoe says he cannot intervene
A SURPLUS of money across Europe’s banks means that an increasing number of house buyers are being charged by their lenders for keeping their mortgage money in the bank while they wait for house and land sales to go through.
The growing number of such incidents was raised with Finance Minister Paschal Donohoe by Finance Committee chair John McGuinness and Labour’s Finance spokesman Ged Nash.
Mr McGuinness asked the minister if he would ‘raise with banks and the Central Bank the issue of the negative consequences of the decision to charge negative interest rates on solicitor-client accounts largely affecting those buying or selling houses and land’.
Mr Nash also asked Minister Donohoe if ‘ he planned to address this matter given the State’s shareholding’ in three banks.
Negative interest rates have accompanied a huge increase in savings across Europe during the pandemic, which has created the unique scenario where banks have too much cash in hand.
In Ireland alone savings have increased by over €13bn since the pandemic began.
In an attempt to discourage this scenario, banks have now started to charge depositors for holding their money as distinct to paying interest on it.
Speaking to the Irish Mail on Sunday, Mr Nash said he had been ‘inundated with representations from solicitors’ firms who legally have to operate checking accounts for sales and purchases they don’t benefit from’.
Understandably, he said, ‘both solicitors and clients are less than happy with the scenario where the banks are charging you 0.5% to mind your money’.
There was, he said, ‘a real concern that this may be passed on to hard-pressed home buyers. It is a source of real stress for hard-working people.’ Mr Donohoe rejected calls for him to intervene, noting that ‘deposit balances and liquidity in general have risen significantly across the banking system in Europe in recent years as the ECB has continued to provide additional funds through their asset purchase schemes and long-term refinancing operations’.
This has been further exacerbated, he said, ‘by the Covid-19 pandemic as households continue to stay at home and save and businesses defer investment decisions’. Mr Donohoe noted: ‘Excess liquidity, which has grown significantly in the European system, has to go somewhere, and in large part it gets placed back on deposit with the ECB, who charge the banks -0.50%.’
The Finance Minister said: ‘The application of negative deposit rates by the ECB has resulted in European banks incurring a consequent cost on deposit accounts.’
He added: ‘The banks across Europe have looked to pass some of the costs associated with negative rates to deposit holders with larger balances. The Irish banks are no different in this regard.
‘In passing on some of these costs it is important to note that banks cannot differentiate
‘Solicitors and clients are less than happy’
‘I have no role in daily operations’
between customers in different sectors and for that reason the approach taken is to apply charges based on the size of the deposit balance.’
Mr Donohoe also swayed away from suggestions that the State’s shareholding justified an intervention, noting that ‘as Minister for Finance, I have no role in the day-to-day operations of any bank operating within the State including banks in which the State has a shareholding.’
However, Mr Nash noted: ‘The Minister should be more proactive. This has the potential to add yet another layer of dysfunctionality to the housing market.’