Regulator warns homeowners of higher interest rates
Cash-strapped homeowners were tonight warned the era of low mortgage interest rates was ending, with hikes an unfortunate but inevitable consequence of risky lending by banks.
Financial Regulator Matthew Elderfield said banks would continue to re-price their mortgage books in the coming months.
Bank of Ireland, Allied Irish Banks and Permanent TSB have already increased mortgage rates for tens of thousands of households.
"Part of the reason for such favourable rates was that the banks' business models were, as we now know, fundamentally flawed, chasing unsustainable profits through risky property and development lending, profits which effectively subsidised aggressive campaigns for mortgage market share and unsustainably low interest rates," Mr Elderfield said.
"That skewed business model now needs to be fundamentally re-calibrated - and at a time when banks' costs of funding are significantly higher.
"Interest rate increases for borrowers are an unfortunate but inevitable consequence of this new world."
Mr Elderfield said the Government faced difficult choices as well as a "moral hazard" in helping those in mortgage arrears.
The watchdog said many people got into debt because of the economy, but some people overstretched themselves.
"How much relief do you give to people in mortgage arrears, when the cost is ultimately going to be borne by the taxpayer," he said.
"You've got this difficult moral hazard issue you have to be open about, that the taxpayers who manage their debts well may be reluctant to fund those who didn't manage their debts so well."
The watchdog also told TDs and Senators at the Economic Regulatory Affairs Committee that a rapid wind-up of scandal-hit Anglo Irish Bank would be prohibitively expensive and the current course was a reasonable way to minimise the cost to taxpayers.
He also signalled the Government may not need to inject further cash into the banks, claiming they had looked at "pretty dire situations" which did not require further recapitalisation.
It was the first time Mr Elderfield appeared before the committee since being appointed late last year.
The watchdog said it was clear that a fundamental overhaul of the regulatory regime was needed, and he said the banking crisis in Ireland had a home-grown element.
"We need to address the weaknesses in regulation that contributed to the scale of the financial crisis and keep pace with the strengthening of regulation that is occurring internationally," he said.
"Our new approach requires assertive risk-based regulation underpinned by a credible threat of enforcement."
Asked if he would be going after those who have done wrong, Mr Elderfield said that his office would leave prosecutions to gardaí.
He said the resources available to the regulators before the financial crisis was miles off what was needed.
"This has perhaps been my biggest area of surprise since I've come into my job, just how poorly resourced the financial regulator is, compared to what I know the benchmarks are for Bermuda, which I thought was pretty lightly resourced."
