Central Bank (Variable Rate Mortgages) Bill 2015: First Stage

I move:

That leave be granted to introduce a Bill entitled an Act to provide for measures to address market failures in the market for principal dwelling house mortgage loans, and to provide for related matters.

I propose this Bill in response to a situation in which the Irish mortgage market is simply not working for standard variable rate customers. Over 300,000 households are currently paying rates that are double the European average for equivalent mortgages. This is costing families hundreds of euro a month in additional interest payments. The margin earned by banks on variable rate loans in Ireland has grown dramatically as their cost of funds has fallen. Variable rates in Ireland are now so high that a customer with a €200,000 mortgage with 20 years left to run is paying €4,000 a year in additional interest when compared to a similar customer in other European countries. This is an unacceptable situation and as a parliament we are duty bound to act to protect the interests of consumers.

The recent report from the Central Bank on the influences on standard variable rate mortgage pricing in Ireland sheds important light on the nature of the mortgage market in Ireland today. It clearly outlines the dysfunctionality which exists. I agree with the Central Bank's statement that greater transparency surrounding the variable interest rate policies operated by each bank would help in this regard. As it stands, customers have been left bewildered as to why they are paying a higher rate for their mortgages as ECB rates have fallen to record lows. It is doubtful, however, if the banks will actually voluntarily engage in such a process. While the data presented by the Central Bank is stark, I very much disagree with its conclusion that policy steps to interfere with the rates charged risk creating side effects. It is our belief that we are already living with the negative impact, both socially and economically, of excessive variable mortgage rates which are in fact twice the European average.

We cannot rely on moral pressure alone to solve this issue. The Minister for Finance, Deputy Michael Noonan, under considerable pressure from many quarters engaged in a series of meetings with the banks. While they have until 1 July to issue their formal response, the early signs are not good. For example, the Bank of Ireland has announced reductions to its fixed rate mortgage products but the point should be made by this House that a fixed rate mortgage product is not a substitute for a reduction in the standard variable mortgage rate. It is clear that the softly-softly approach adopted by the Government is simply not going to work and that a robust legislative framework is needed in relation to variable mortgage rates.

Fianna Fáil believes that this legislation represents a significant improvement in the level of protection available to mortgage holders. The legislation we are proposing is balanced between the obvious need for banks to be profitable and the rights of consumers to be treated fairly. The Central Bank would be given responsibility for monitoring the level of competition in the mortgage market and the fairness of rates charged. This would act as a strong deterrent to banks from charging excessive rates and would only necessitate Central Bank action where the evidence points to a clear market failure. It would empower the Central Bank with a range of tools to influence the standard variable rates charged, including directing a lender not to charge a rate which exceeds a specified maximum rate, a margin above that lender's cost of funds, a margin above the ECB rate or a proportion more than, for example, one third above the average variable rate charged in the market.

This process would also have the distinct advantage of protecting customers of smaller lenders and those families whose loans are sold to vulture funds. Currently there is nothing whatsoever to stop the buyers of these mortgages from increasing rates to 6%, 7% or even higher. The process would be supported by a system of sanctions for banks which failed to comply with a direction order from the Central Bank. We are also proposing a clause to protect existing customers from discrimination, which would require a bank to make the same product offering available to existing customers as is offered to new customers. Now is the time for mortgage fairness. Our legislation will help bring this about and again we look forward to a full debate on Second Stage.

Is the Bill opposed?

Question put and agreed to.

Since this is a Private Members' Bill, Second Stage must, under Standing Orders, be taken in Private Members' time.

I move: "That the Bill be taken in Private Members' time."

Question put and agreed to.