Paul Gogarty (Dublin Mid West, Green Party)
Link to this: Individually | In context

Question 5: To ask the Minister for Finance if his attention has been drawn to any service available to fixed rate mortgage holders whereby they are able to switch without paying the breakage fee; if there have been further deliberations regarding the hardships caused to fixed rate mortgage holders in the current economic situation; if, notwithstanding the reality that a fixed rate mortgage was a decision made by persons who could still benefit from this relative to variable rate holders, there is scope to provide some limited assistance in view of the unprecedented situation with job losses, income levies and pension levies; and if he will make a statement on the matter. [23199/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The Consumer Credit Act, 1995 ("the Act"), is the principal piece of legislation protecting the consumer in the context of mortgage credit agreements with a lender. The Act requires that the credit agreement governing the relationship between the lender and the consumer for the duration of the agreement, to be in writing. Agreements may include a provision allowing a consumer to switch from a fixed rate mortgage to a variable rate mortgage upon the payment of a fee in respect of funding costs. Where there is no specific contractual term empowering the consumer to move from a fixed rate mortgage to a variable rate mortgage in the credit agreement, the consumer has no contractual right to do so. A lender may, of course, exercise its discretion in allowing a consumer to move from a fixed rate to a variable rate mortgage.

However, when a borrower signs a fixed-rate mortgage contract with a mortgage provider, the lender in turn enters into an agreement where they borrow the money at an agreed rate. The mortgage lender must repay the money at this agreed rate, so there is a cost to the institution if the fixed rate agreement is terminated before the agreed term which gives rise to the redemption fee charged in these cases. On 26 March 2009, I undertook, in this House, to raise concerns regarding the level of redemption fees with the Consumer Director of the Financial Regulator who has a statutory mandate to safeguard the interests of consumers. The Financial Regulator has confirmed to my Department, that all mortgage lenders have provided it with the formula used by that lender when calculating the early redemption fee applying to fixed rate mortgages.

The Financial Regulator has also sought independent verification by an actuary that the fee charged by a number of lenders recouped only the loss in funding costs incurred by the lenders due to the early redemption of a fixed rate mortgage. The Financial Regulator has received the majority of the actuarial independent verifications from lenders and is currently reviewing the information received. The verifications received to date indicate that the formulae applied by lenders seek to recoup the loss to the lender arising from the early redemption of the fixed rate mortgage and do not apply a penalty charge on the borrower. The Financial Regulator is also examining whether any additional costs are being charged. The Financial Regulator has advised that further analysis may be necessary once all of the information is received and reviewed. Should the remaining analysis by the Financial Regulator indicate that further consideration of this issue is required, it will be carried out.