A leading mortgage expert is encouraging banks to follow a US example and introduce mortgages where there is a limit on the interest rate they can charge.
In an interview with The Irish Independent, Frank Conway of MoneyCoach.ie said such a rate cap was common in America and would give some certainty to new borrowers.
Mr Conway’s comments come on the back of reports that the Central Bank was considering encouraging banks to bring in more long-term fixed-rate mortgages, with the regulator understood to
Around 87% of mortgages are either tracker or variable rate, leaving homeowners vulnerable to interest rate hikes.
Now Mr Conway has suggested that banks should also be encouraged to introduce mortgages with rate caps.
With a rate cap, mortgage lenders would only be allowed to increase the interest rate by a set percentage each year.
There would also be restrictions on rises in the interest rate over the lifetime of the loan.
This would mean that if a mortgage had an original interest rate of 4% then the annual increases could be no more than 1%, with the lifetime increases no more than 3%.
The Central Bank proposals to discourage banks from offering variable mortgages and restrict institutions from taking on too much “high-risk property lending” are said to be at an “early stage of development.”
The Central Bank has insisted, however, that it is not planning to ban variable-rate mortgages – something that 255,000 householders are on.
Instead they are expected to concentrate on promoting longer-term fixed rate loan terms like the 10 and 15 year rates common in Europe. Just 130,000 homeowners have fixed rates at the moment.