Dáil Éireann Debate, Wednesday - 6 May 2015
148. Deputy Mick Wallace asked the Minister for Finance his plans to introduce incentives for banks to lower their interest rates for variable mortgages to bring them more in line with European Central Bank interest rates; and if he will make a statement on the matter. [17591/15]
View answer151. Deputy Michael McGrath asked the Minister for Finance if consideration is being given to increasing the bank levy on financial institutions that do not reduce standard variable mortgage rates. [17596/15]
View answerI propose to take Questions Nos. 148 and 151 together.
At the outset I would like to confirm that the lending institutions in Ireland - including those in which the State has a significant shareholding - are independent commercial entities. I, as Minister for Finance, have no statutory role in relation to regulated financial institutions setting interest rates. The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned.
Equally, the Central Bank has no statutory role in the setting of interest rates by regulated entities, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act, 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears.
Nonetheless, the issue of regulation of interest rates remains a policy area under active review. The current position is that the Central Bank does not have new proposals for the additional regulation of interest rates. However, a former Deputy Governor indicated that, within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds and this is a course of action I expect the Central Bank to continually appraise.
I meet regularly with the Governor of the Central Bank. The latest of these meetings took place on 2 April where we discussed the issue of mortgage interest rates. We noted that the SVRs charged in Ireland are higher than other euro area countries and have not fallen in line with ECB wholesale rates.
As a result of this meeting the Governor of the Central Bank is currently reviewing the cost of mortgages to banks. The Governor should be in a position to present this analysis to me in the next 10 days or so. I will then meet the six principal mortgage lenders in order to discuss this issue.
I think that we need to bear in mind that the Financial Institutions Levy announced as part of Budget 2014 is a revenue raising measure which allows for a contribution from the banking sector to Ireland's economic recovery. The levy will be in place for three years with an anticipated annual yield of €150 million. The imposition of the levy is a proportionate measure on a domestic banking sector. The entire banking system has been underpinned by the strong Government support provided both here and abroad and it is appropriate that the banking sector should make a contribution to the State's economic recovery.
It should also be noted that there have been moves on interest rates. As the Deputy will be aware, on 1 May AIB Group announced a number of reductions to its mortgage interest rates for owner occupier and buy-to-let mortgages. These included a cut of 0.25% for AIB Standard Variable Rate (SVR) customers and 0.38% for EBS and Haven SVR customers. The Bank also announced reductions in Loan to Value (LTV) and Fixed Rate mortgages across AIB, EBS and Haven. These rate reductions will apply to both new and existing customers.
This is the second time in the past six months that AIB Group has reduced its mortgage rates for new and existing customers. The latest move significantly benefits approx. 158,000 mortgage account holders. Individual SVR Customers will be advised of the changes in writing by AIB group.
