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WHEN THE FIVE main Irish banks announced in March that they would allow for an initial three-month mortgage payment break for customers as a result of the pandemic, it was broadly welcomed across the political spectrum.
Much to the relief of many borrowers, the payment holiday was then extended in April for a further three months.
By the end of May, the Banking and Payments Federation of Ireland (BPFI) — the main lobbying group for the banking sector — said that close to 80,000 mortgage customers had availed of the moratorium.
The Central Bank said today that close to 160,000 borrowers have now applied for payment breaks.
Now, a controversy over the application of extra interest charges to mortgages during the break period threatens to undo a lot of the good publicity that the banks had enjoyed in recent months.
So what’s the issue?
The issue, in a nutshell, is that customers who opted to temporarily park their mortgage payments under the moratorium are still being charged interest by their banks.
It means that anyone who availed of the break could effectively end up forking over more money to their bank over the course of their mortgage term than if they had opted to keep up with monthly repayments.
In a blog post published at the beginning of May, head of communications at price comparison site Bonkers.ie Darragh Cassidy explained the situation in simple terms.
“Interest will still be charged on your mortgage during [the break period] meaning you’ll end up having to pay back even more to your bank over the remaining term of your mortgage,” Cassidy explained.
He explained that customers won’t necessarily have to pay the interest back in “one lump sum”. It’ll be added on to your usual monthly mortgage repayments after the three or six months are up and spread over the rest of your mortgage term.
“This means many people may not notice that much of a difference. However, it all adds up.”
Using a simple example of someone who had a remaining mortgage of €300,000 over 30 years at a 3.2% interest rate, Cassidy claimed that they could end up paying back €4,300 in extra interest payments.
In April, Sinn Féin finance spokesperson Pearse Doherty told the Dáil that he had heard from one Permanent TSB customer who had applied for a three-month reprieve and faced being saddled with an extra €7,739 in interest charges.
How did the banks justify the extra charges?
Well, this is where it gets a bit tricky.
Oversimplifying it for a second, the banks have said that regulations issued by the European Banking Authority (EBA) actually require them to charge interest during the moratorium.
Why? Because, they claimed, without charging interest, the rules stipulate that they would have to classify those mortgages as being ‘in default’.
Obviously, that could have a knock-on effect for borrowers and their credit scores down the line.
Probably the most important feature of the payment break is that it can’t be held against the borrower in the future.
As early as 31 March, the Central Bank confirmed that anyone availing of the break would not be marked down as having missed payments nor would it have any impact on the consumer’s credit score.
So the banks were able to say that by charging interest during the break period, they were preventing blowback for their customers.
Ok, so why is that so controversial?
In recent days, a number of developments have significantly undermined the banks’ claim that they were obliged by EBA regulations to apply the interest charges.
At Tuesday’s sitting of the Dáil Special Committee on Covid-19, Central Bank governor Gabriel Makhlouf was questioned on the issue by Sinn Féin’s Doherty.
The Donegal TD has been particularly vocal for a number of months and even published draft legislation aimed at rectifying the issue in June.
In response to Doherty’s queries, Makhlouf confirmed on Tuesday there was no such obligation for the banks to charge interest during the break period.
But Doherty had already received confirmation of the same from Makhlouf’s deputy governor Sharon Donnery in June. Correspondence between Donnery and Doherty was published on the Central Bank website.
Also on Tuesday, the EBA released a statement confirming that waiving these interest charges would not force borrowers into default.
There’s also the small matter of a meeting that took place between the heads of the Irish banks and then-Taoiseach Leo Varadkar and Finance Minister Paschal Donohoe on 11 May.
Over the weekend, the Business Post reported on the minutes of that confab at which the banks reportedly told the Taoiseach that the regulations require them to charge interest during the payment breaks.
Doherty has now accused the banks of misleading the Taoiseach, which the BPFI rejected in a statement yesterday.
The BPFI said that Irish lenders have been “clear and upfront” in outlining the type of payment breaks available to customers and how they would apply in line with EBA Guidance.
Speaking in the Dáil today, Tániste Leo Varadkar denied that the banks had misled him during the meeting on the 11 May.
“I haven’t seen the minutes but I was at the meeting,” Varadkar said, “and I have to say that the banks never claimed that they couldn’t waive interest for that period.
“They did say that it would be possible to waive interest for that period. The issue that they had was that someone had to pay for the cost of the payment break.”
So have the banks broken any rules?
No, they haven’t.
The existing rules gave the Irish banks the option to charge or not charge their customers during the break period.
So when former Fine Gael MEP Brian Hayes, who is currently chief executive of the BPFI, said in a statement yesterday that the charges are “fully in line with EBA Guidance”, he was absolutely correct.
However, critics of the charges — like Doherty and Labour Party leader Alan Kelly — have raised the question of propriety.
“Charging interest accrued on loan payment breaks during Covid-19 is the banks profiteering on the pandemic,” Doherty said yesterday.
In the Special Dáil Committee on Tuesday, the Donegal TD said that in Belgium, “KBC voluntarily for low-income borrowers do not charge interest rates during the break. KBC here charge interest rates for customers in Ireland.”
BPFI countered, arguing that apart from Belgian and Spanish banks, most European financial institutions are charging borrowers interest during the break period.
It’s not just politicians who are expressing their frustration with the banks.
On RTÉ’s Today with Sarah McInerney yesterday, financial planning expert Eoin McGee opined that “the banks here just take every opportunity they can to get things wrong when it comes to dealing with the public”.
Yesterday, Hayes said that Irish lenders have gone “above and beyond” what other European banks have been doing for their customers.
Varadkar said today that he told the banks in May that, “If it turns out you make an additional profit out of this… I would see that as serious as the scandal of the tracker mortgages and I would come down on them like a tonne of bricks”.
Regardless, the banks have given no indication that they plan to change to practice.
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Because that’s what Irish banks would do given half the chance.. Nothing has changed in that regard.
@Hank Schrader: It’s still all about the bonuses.
@Hank Schrader: Thankfully Pearse Doherty is the man!
Varadkar coming down on the banks like a ton of bricks? Hahaha. As if.
@Aidan O’ Neill: Yes and don’t forget “not another red cent to the banks”. Some people still think the people who run banks are decent honourable and truthful. These bankers are the biggest criminals in the state facilitated by their FFG cronies.
@Derek Poutch: Remember the day. It will be recalled in the future just as Labour’s way or Frankfurt’s way is today.
Pearse is one shrewd operator. A man who wouldn’t be in the pockets of the insurance industry, the bankers, the media or the developers. No wonder they’re all so afraid of a Sinn Féin government.
@Johnny 5: yeah…I’m sure they’re shaking in their boots
@Johnny 5: just a heads up……they are all as bad as each other!
@Joe_X: Joe, I’ll wait to judge Sinn Féin after they’ve had a lengthy period in government. Until then, we can only judge those who’ve shared power for the last 100 years.
Absolutely beautiful picture of Brian Hayes there, sums him and everything he stands for perfectly.
@Willie: FFG and the banking fraternity perfectly intertwined. Sums this country up perfectly.
I’m not a supporter of banks and profiteering but the fact remains that there is a cost of money that is incurred. Deferred payments do carry an interest cost. It would be a moral hazard if this was given ‘interest free’ to mortgage holders who availed of the payment break compared to those who continued to make their payments without a break.
@Luan Willis: no it wouldn’t be a moral hazard. They would still pay the same in the end.One person taking a break is not going to affect my mortgage repayments.
@Luan Willis:
100% Agree!
If mtg holders wish to avail of repmts holiday granted during the covid-19, that’s their biz.
The banks biz is to op responsibly, pay own bills as they fall due. This includes earning their income, incl charging intst on mtg book monies o/s from property owners.
Who cares if pmt hol adds an extra €7k or €8k on to total mtg balance, if master plan is early home ownership & debt free after 15,20,30 years?
Sure you still own your effin house, a fine store-of-value asset, with tax-free gains whenever one decides to sell.
Cash now is more valuable than say in yr 25. So, a 3 mth pmt hol on ave mtg puts about €4,500 into your ar*e pocket, NOW.
Leo is talking BS! Pearse, absolute HS! Think fairness. No holiday, debt-free earlier. Avail, debt-free later!
@Rory J Leonard:Some people had no choice to take a payment holiday, luckily for me I didn’t have to but some people went from 2 incomes to no income other than the covid payment which probably didn’t cover one income.Most people pay their mortgages with one income and live off the other so when the govt locked down all but essential business most people were left bereft of their ability to pay their mortgages without starving.This b. s about the banks and their bills is exactly what it is b.s they made bn’s in profit between them last year and most people are still paying the exhorbitant interest and charges so they have plenty of ability to pay. We bailed them out when they almost broke the country didn’t pay back a bob and when we are in trouble all we get is 2 fingers and profiteering
@Rory J Leonard: And don’t make me laugh about Irish banks operating responsibly. Operating to line their own pockets is how they have always operated
@Luan Willis: There’s no cost. Only Profit.
The Wa!nks don’t borrow, the W_anks don’t lend
It’s only credit they extend
Its what irish banks do pofit at all costs to hell with irish people their profits and shareholders are all that matter nothing new they should remember it was irish people who bailed them out in the past
And shouldn’t in the future
It’s very good of the banks to go “above and beyond” what other European banks have been doing for their customers. Has the Irish tax payer (bank customer) not gone “above and beyond” their european counterparts by containing to bail out the banks against their will since 2009. I think the banks have short memories.
@Paddy Doherty: No it happened in several European countries. Banks were bailed out by governments in most European countries including the UK.
If they don’t charge interest their profits will drop significantly. If that happens the rating agencies will downgrade them which in turn will increase the cost at which they can borrow money. If they have a higher borrowing cost then it will be reflected in the interest rates charged to companies & individuals they lend money to. Essentially if that happens all borrowers will pick up the tab for those that got a mortgage break. Thanks but no.
A lot of “rules” have changed during the pandemic. The banks can easily change their “rules “ to change the classification of payment break mortgages . It’s they make the rules. This is not an excuse
Is Pearse Doherty the only defence we have? Are there any honourable TDs in the other parties or is corruption by lobbyists normalised by Fianna Fáil?
They say the cost to the banks would be about 150 million, this would be a big problem for most industries however their profits are in the billions per annum, as long as the 1% don’t wanna share our progress as human race will be forever hastened.
Banks ALWAYS win. We bailed out the banks and were told the tax payers would get money back in time for bailing them out. What did we get ……NOTHING . The only people who won out and got there wages raised,bonuses ect were bankers and there cronies. The rich get richer the ordinary Joe soap get screwed. Were in a tiered society and dictatorship government.
@Justin Hanley:
Thanks to very creative tax loopholes which benifit only a small section we now have society of more millionaires than nurses ,,,, never in the history of this tax raped and plundered country have so many many contributed so much to the wealth of the few,,,
We applaud our front line workers , many have made the ultimate sacrifce protecting our community from this dreadful virus . Now is time for Government to show real thanks and acknowledge their great work in a practical way , Pay them what they are really worth ,,, A few cents tax on all alcoholic drinks or similar would suffice,
@Justin Hanley:
On second thoughts Government should close off tax loophole and have banks pay their
They are being accused of it because they are. They are immoral robbing b s a d. .
This is probably a dumb question so forgive me in advance but what’s the reason I can’t go to France and get a mortgage on a house I buy in Ireland? We are all in the EU as such so borderless trade and all that.
@Sal Paradise: And Google answered my question:
“An Irish bank will only take security over an Irish property (i.e. within the State) and will not lend to buy property in foreign countries. This is the same in other countries; so a Spanish bank will only lend taking a Spanish property as security. Unfortunately this means you won’t be able to fund your Irish property purchase in this way.”
@Sal Paradise: In any case they wouldn’t bother because of the difficulty in repossessing houses in Ireland that are hopelessly in arrears. I imagine this would be even more difficult for a foreign bank.
@Sal Paradise: I can tell you if you defaulted on your mortgage with a French bank you’d find out very quickly who was boss.
Put your money in Revolut, in N26, in BitCoin or even under the mattress – anything but a pillar bank. Starve them of their lifeblood – your money. Only way to put manners on them.
@Jan Asterix Vincent*: put my money into a road in Mayo connecting Swinford and Foxford?!
@Joe Kennedy: bravo, was compelled to give that a like
@Joe Kennedy: Agree with the above sentiment but thats effin hilarious Joe! nice one!
@Jan Asterix Vincent*: People are more inclined to keep their savings with pillar banks as they’re the ones that will be bailed out? Not the notoriously unstable Bitcoin, etc.
Its what banks do. I paid a lump sum off an Ulster Bank mortgage and discovered later that it made no difference to the interest I was paying
@brian oconnell: you need to check that one out. Interest should be on remaining balance so if payments stay the same you should be finished paying sooner.
All very well but I bet overdrafts will be put up along with everything else as usual the ordinary punter will pay
It’s not often reported, but the reality is it’s the banks who tell the politicians what to do.
That’s who run the world
Most people dont understand banks are getting less and less chance to earn money on net interest margins, they will do everything to earn some bucks.
@RJ: Give me a minute until I set up a GoFundMe page for our poor banks. Save Our Banks (S.O.B.’s)
Everyone who asked for a deferral were clearly informed of the terms. It is purely populist to now infer different. If the banks had decided not to charge interest then everyone with borrowing would apply for a deferral and moan if they didn’t get it. Makes no sense that one person would get interest free borrowing and others would continue to pay.
@For Goodness Sake: You seem confused re the facts!Do you realize that customers who had to avail of this mortgage moratorium re their mortgage payments will not just be paying their usual mortgage and interest but EXTRA interest as well that the banks are charging for the moratorium period,that’s why Pearse Doherty has raised this since March!!
Greed is good
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