Is the end of fixed rate mortgages in sight? – Hayes
Brian Hayes MEP today warned that banks may be seriously restricted in how they offer fixed rate mortgages in the future due to an examination by the Basel Committee, an International Group of Regulators, of the risks posed by fixed rate loans.
“Is the end of fixed rate mortgages in sight? It’s possible. The Basel Committee is conducting an examination of interest rate risk for banks with a view to proposing regulatory changes to how these loans can be offered to customers and how they are structured.
“International Regulators want banks to be better protected from interest rate risk. It is considered that fixed rate mortgages carry a risk in that the rate cannot be adjusted to reflect market conditions. The Basel Committee generally advocates for variable rate mortgages since banks can adjust them according to market conditions and can link them to central bank interest rates.
“The Basel Committee believes that risks should be transferred from lender to borrower as much as possible. I do accept there are systemic risk issues that need to be tackled. But to restrict all banking practices to render them useless should not be the way to proceed.
“The major issue for the Basel Committee is the possibility of prepayment of a mortgage before the end of the mortgage term. Irish banks do offer the possibility of prepayment but mostly there are penalties if you want to pay off your fixed rate mortgage early.
“The work undertaken by the Basel Committee will not help the development of a better fixed rate market for mortgages in Ireland. But I believe lawmakers and policymakers should keep pushing for a better deal for customers when it comes to fixed rate products. There is serious concern in Belgium and France over the Basel Committee’s examination. That is because the fixed rate regime in those countries has worked so well for people for decades.
“The process still has some way to go and it is contingent on new rules being developed for banks under a so-called ‘Basel IV’ process. This would update the current rules on how much capital banks have to hold to protect against systemic risk.
“Unfortunately we don’t have a well-developed market for fixed-rate mortgages in Ireland. In the U.S and mainland Europe, the situation is very different. It’s possible to get fixed rate mortgage products of 20 years in the US and in other European countries for 3% or less. In Belgium, I can go into a KBC bank and get a 20 year fixed interest mortgage for 3.15%. In Ireland, we don’t have any fixed rates above 10 years and Bank of Ireland is the only bank to offer a 10-year fixed rate product with a rate of 4.4%.”