By Dan White
Thursday April 16 2009

AS pressure mounts for the banks to pass on interest rate reductions to fixed-rate mortgage borrowers, the Government should turn a deaf ear to the controversy. With most of the banks likely to be majority state-owned shortly, the cost of any "rescue" for fixed-rate borrowers would be largely borne by taxpayers.

Someone with a €300,000 variable-rate mortgage repayable over 30 years has seen their monthly repayments plunge from €1,750 per month to just €1,224 per month, a saving of more than €500 per month.

Meanwhile, the tens of thousands of homeowners who are locked into fixed-rate mortgages can only look on enviously as they continue to pay the previous, higher rates. Not surprisingly, with household budgets stretched as tight as a drum, some fixed-rate mortgage holders have argued that the banks and/or the Government should "do something" about the plight of fixed-rate mortgage borrowers.

So what should the Government and/or the banks "do" about this situation?

Preferably as little as possible.

Let's get real here. We're all consenting adults. The vast majority of those who took out fixed-rate mortgages knew exactly what they were doing. They wanted the security of knowing that their monthly repayments wouldn't increase if interest rates rose. And, when the ECB raised interest rates from 2pc to 4.25pc between December 2005 and July 2008, they reaped the benefit. Meanwhile the vast majority of homeowners who had opted for variable-rate mortgages had no option but to pay up.

Now that the boot is on the other foot it is fixed-rate mortgage borrowers who are losing out. Having been the beneficiaries of rising interest rates up to the middle of 2008 they are in a poor position to complain now that rates are falling.

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