Tom Hayes (Tipperary South, Fine Gael)
Link to this: Individually | In context

Question 138: To ask the Minister for Finance the agreement between his Department and the Financial Regulator on the high costs to consumers of opting out of fixed-rate mortgages; if a final decision has been made regarding these payments; if the Financial Regulator has finished consulting with the various banking institutions on this matter; the steps he will take on same; and if he will make a statement on the matter. [29366/09]

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

The Deputy's question refers to the commitment I gave in this House on 26 March 2009 to request the Consumer Director in the Financial Regulator - which has a statutory mandate to safeguard customers' interests - to examine the level of redemption fees charged by banks to customers wishing to exit from fixed rate mortgages. My Department received a copy of the Financial Regulator's report on this matter on 29 June 2009.

The report sets out that the Financial Regulator requested specific information from 26 lenders on how early redemption fees quoted to customers are calculated. Of the 26 lenders, 25 confirmed to the FR that they did not impose any fees in respect of the early redemption of a fixed rate home loan other than those which would arise in the context of a normal redemption of any mortgage. In one case a €95 fee approved under the Consumer Credit Act, 1995 is charged by the lender for breaking a fixed rate mortgage.

The FR's report states that independent actuarial confirmation was also sought from all of the lenders to substantiate the case that the formulae applied by them to calculate redemption fees were restricted to the recovery cost of the funding of particular fixed rate mortgage arrangements in place.

On the basis of the information supplied by the lenders including worked examples and the actuarial confirmations submitted, the FR concluded and has confirmed to my Department that its analysis indicates that:-

· the early redemption fee calculation in all cases appears to seek to recover the costs; and

· lenders do not generally apply additional fees in the case of early redemption.

The Financial Regulator has advised my Department in its report that since its findings are based on a review of material provided by lending institutions that it will carry out on-site inspections to verify the accuracy of the information that it has received at this time. In this regard a programme of on-site inspections has already commenced in relation to the application of early redemption charges. The Financial Regulator plans to conduct inspections in at least 6 institutions. The Financial Regulator has also advised me that while it has identified issues that it will be separately following up with individual institutions, the preliminary findings from those inspections conducted to date support the findings contained in the report.

Lenders do not therefore seem to be applying financial penalties in order to dissuade borrowers from early redemption of fixed rate mortgages. However, if the additional work to be undertaken by the Financial Regulator brings to light any information that does not support the findings and the conclusions contained in its report, the Financial Regulator has confirmed that this information will be made available in the public domain.