Introduction of additional consumer protection measures for variable rate mortgage holders

• Enhanced measures to increase lenders’ transparency about variable interest rates
• Lenders must explain to borrowers how they set their variable interest rates
• Lenders will have to provide information about other options

The Central Bank of Ireland has announced the introduction of a number of increased protections for variable rate mortgage holders. The enhanced measures will require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures will also improve the level of information required to be provided to borrowers on variable rates about other products.

The measures, which are provided for in an Addendum to the Consumer Protection Code 2012, include the following:

Statement of factors impacting on the rate

Lenders will be required to produce and publish a summary statement of their policy for setting each variable interest rate that must include the factors that impact on the calculation of their variable rate and their criteria and procedures applicable to the setting of rates.  If the lender applies a different approach to setting the variable interest rate for different cohorts of borrowers the summary statement must state that and must give the reasons for the different approach. 

This summary statement will be provided to borrowers when they are offered a variable rate mortgage and also made available on the lender’s website on an on-going basis. Lenders will be required to notify affected borrowers of changes to the statement and make available an updated summary statement on their website.

Information about other mortgage options

Lenders will be required to notify variable rate borrowers of alternative mortgage options that could provide savings for the borrower, both on an annual basis and also when notifying borrowers of an increase in the variable interest rate.  This will include details of where the borrower can get more information and a link to the relevant section of the website of the Competition and Consumer Protection Commission ( www.consumerhelp.ie) in order to assist consumers wishing to switch mortgage providers.

Statement of reasons for an interest rate increase

Where there is an increase in a variable interest rate, lenders will be required to include the reason for the rate increase in the notification provided to variable rate borrowers. The reason will tie in with and make specific reference to the lender’s variable rate policy statement.

Director of Consumer Protection, Bernard Sheridan, said: “Taking out a mortgage is one of the biggest decisions a consumer will make in their lives and it is essential that they can make this decision as part of a clear and transparent process that protects their interests.  A primary concern for consumers, with a variable rate mortgage, is the rate that they will have to pay and how that may vary during the mortgage term. The measures we are introducing today will require lenders to be more transparent with borrowers about how they set their variable interest rates, including in the event of an increase. These measures will also improve the level of information required to be provided to borrowers on variable rates about other products, so they can consider their options.”

The Central Bank is amending the Consumer Protection Code 2012 (the Code) to add these enhanced transparency measures by publishing an Addendum to the Code. In order to allow firms sufficient time to develop and consumer test their plain English summary statements, as well as the systems changes needed to implement these measures, the measures set out in Part 1 of the Addendum will apply to regulated entities from 1 February 2017.

Notes

The Central Bank proposed a range of increased protections for variable rate mortgage holders in a Consultation Paper in November 2015. Read submissions received and the Central Bank’s feedback statement.

The transparency measures announced today apply to ‘variable rate mortgages’, i.e. mortgages where the rate can be changed at the lender’s discretion, excluding tracker rate mortgages.

In July 2015, the Central Bank published research into switching mortgages in the Irish market, which concluded that increased information and greater transparency on mortgage products and switching options would be beneficial.

In its recent market research on mortgage holding and switching, the Competition and Consumer Protection Commission (CCPC) found that almost one third of respondents agreed that prompts or information from their provider at different trigger points on mortgage options in the market, such as annually with a certificate of interest/when a rate change is about to happen, would be a possible switching catalyst. 

The CCPC provides independent information on mortgage switching including a mortgage switching tool.This tool is very useful for consumers as it can be difficult to compare rates across different providers. The tool shows the difference between what a borrower is paying and what is available in the market, per month and over the lifetime the mortgage.