Every mortgage provider should offer its customers fixed-rate loans, the Finance Minister has said.
Michael McGrath was responding after the Irish Independent revealed how a court decision forced mortgage servicer Pepper to give a borrower couple a low fixed rate of 2.5pc for 25 years.
“I welcome the judgment,” the minister told reporters yesterday, after his department published an options paper on a new sovereign wealth fund.
“I believe that loan owners and mortgage providers should be offering fixed-rate options to their borrowers. Pepper has not been offering fixed-rate product solutions.
“I do think, for some customers, that certainty of knowing how much they will have to pay over the years ahead is very valuable – so I welcome the judgment.
“Hopefully we will see more such outcomes into the future.”
He spoke after Tullamore Circuit Court approved a formal personal insolvency arrangement (PIA) that will force Pepper to give a borrower couple a rate of 2.5pc, fixed for 25 years.
The court’s decision led to the Central Bank being accused of “sitting on its hands”, instead of helping homeowners whose mortgages are trapped with vulture funds.
The court decision has huge implications for the thousands of “mortgage prisoners”, whose loans were sold to vulture funds and are managed for the funds by credit-servicing firms.
David Hall of the Irish Mortgage Holders’ Organisation said: “The courts acted to recognise the impact of variable rates faced by people in mortgage arrears, where the Central Bank has sat on its hands.”
He said Mr McGrath had asked the Central Bank whether it wanted more powers to force vulture funds and their credit servicers to give borrowers trapped with them fixed rates – but it said it did not want additional powers.
Mr Hall accused the Central Bank of failing in its “statutory obligation” to protect vulnerable borrowers, especially those whose loans were sold to vulture funds and are unable to get fixed rates, or switch lenders.
And leading personal insolvency practitioner Mitchell O’Brien of IRS Ireland said the Tullamore case involving Pepper was very significant.
He said the Central Bank had encouraged the mainstream banks to sell non-performing loans to vultures – but did not want extra powers to force funds to offer fixed rates.
He said that when vulture funds entered the Irish lending market and took over distressed loans – which are serviced by companies including Pepper Finance – there were assurances that borrowers would be treated the same as if they were still with the banks selling the loans.
Now we see some of their customers were paying variable rates of 8pc and the rates were due to go up again, he said.
Pepper had told the court it does not offer fixed rates.
Insolvency experts said the court decision meant the refusal of vulture funds and mortgage firms to offer fixed rates to “mortgage prisoners” would now backfire on them.
This was because thousands of trapped borrowers, who are being hit hard by rocketing rates, were now likely to seek PIAs to force funds to give them similar low fixed rates over long periods.
The Central Bank did not respond to the claims it is sitting on its hands instead of dealing with financial pressure on mortgage prisoners.