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Mortgage Interest Rates

Dáil Éireann Debate, Tuesday - 16 January 2018

Tuesday, 16 January 2018

Questions (236)

Michael McGrath

Question:

236. Deputy Michael McGrath asked the Minister for Finance his views on whether mortgage pricing here is excessive in view of the cost of funds being enjoyed by banks; and if he will make a statement on the matter. [1685/18]

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Written answers

A healthy commercial banking system that is in a position to provide finance to customers and is resilient to economic and financial market shocks needs to be able to generate sustainable profits over the long term.  In Ireland, the mis-pricing of risks in historical lending continues to be a significant contributor to weak profitability, as evidenced by the continued high level of non-performing loans, prevalence of very low yielding tracker mortgages, and low net interest margins.

Furthermore, the residential mortgage market comprises, inter alia, fixed interest rate, loan to value managed variable rate mortgages, trackers, restructured mortgages of various types, etc.  Therefore, the residential mortgage market cannot be assessed by only looking at standard variable rate mortgages, and any assessment, would need to consider the large number of different factors that influence interest rate pricing.

There are legacy issues, together with input costs which include higher costs from credit losses, higher funding costs, higher levels of capital resulting from regulatory changes, higher required capital per euro risk given the severe loss experience in the crisis, higher operating costs per euro of loans given falling balance sheets and the fixed costs base that comes with the infrastructure requirements of large retail banks.

The Central Bank has informed me that it does not have a statutory role to prescribe the rates that mortgage lenders charge on their loans.  However, the Central Bank does require that all mortgages are advertised and sold in accordance with the requirements of financial services legislation (including Central Bank Codes), and that consumers who choose a given mortgage product (or to switch to a new product) are treated in accordance with these requirements in the context of the product they have chosen.

Additionally, the Central Bank has carried out research, which showed the scope for borrowers to save money by switching mortgages and the Competition and Consumer Protection Commission has launched a mortgage switching tool for consumers (which itself notes the findings of the Central Bank research of cases where borrowers could make savings). 

The Central Bank releases monthly retail interest rate data (Tables B1.1 - B2.1). These statistics satisfy reporting requirements as laid down in Regulation (EC) No 1072/2013 of 24 September 2013 (ECB/2013/34)1 as amended by Regulation of the ECB of 8 July 2014 (ECB/2014/30), concerning statistics on interest rates applied by monetary financial institutions (MFIs) to deposits and loans vis-à-vis households and non-financial corporations. Quarterly mortgage interest rates broken down by property type and interest rate type are also published relating to the Irish market. The most recent statistics are available on centralbank.ie.

In addition, the Central Bank announced the introduction of a number of increased protections for variable rate mortgage holders. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, and became effective on 1 February 2017, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.

In August 2017, the Central Bank  published a Consultation Paper, see link https://www.centralbank.ie/publication/consultation-papers/consultation-paper-detail/cp112-enhanced-mortgage-measures-transparency-and-switching  proposing new measures which would enhance the framework of protections for mortgage holders. In that consultation the Central Bank proposed new measures to require lenders to:

- inform consumers about other available mortgage options that could save them money and about the impact of mortgage-related incentives;

- help consumers to compare their existing mortgage to other mortgage options;

- provide consumers with standardised switching information; and

- follow a time-bound switching process.

The consultation period has now ended, and the Central Bank is analysing the responses it received and is considering next steps. 

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