Thursday, 26 September 2019

Questions (41)

Bríd Smith


41. Deputy Bríd Smith asked the Minister for Finance his plans to take action or enact legislation that will bring rates of Irish banks into line with the European average rates for mortgages in view of the fact the current ECB interest rate for deposit facility is 0.5% and its marginal interest rate is 0.25%; and if he will make a statement on the matter. [39093/19]

View answer

Written answers (Question to Finance)

The European Central Bank is responsible for the formulation and implementation of monetary policy for the eurozone and in that context it determines its key lending and deposit rates for monetary policy operations.  The current ECB marginal facility lending rate is 0.25% and, effective from 18 September last, the ECB's deposit facility rate is currently -0.5%.

While the ECB is responsible for the setting of official interest rates for monetary policy purposes, it is a commercial matter for individual banks and other commercial lenders to set their own lending and deposit rates having regard to their credit policies, risk appetite and other commercial considerations when operating in the market.  Neither I nor the Central Bank have a role in prescribing the interest rates that commercial lenders may charge on their loans, including mortgages, or pay for their deposits or other sources of funding.

However, it is important that Ireland has a healthy and competitive commercial banking system so that it is in a position to provide loan finance to households and businesses, whilst also being resilient to economic and financial market shocks.  This means that the banking system must be in a position to generate sustainable profits over the medium term so that it will be in a position to sufficiently generate capital to absorb losses which may arise over the credit cycle.  While Irish mortgage rates are currently high relative to the eurozone average interest rates, it is unfortunate that the past mis-pricing of risks in historical lending continues to be a burden on the system as evidenced by the continuing relatively high level of non-performing loans on the balance sheets of banks and the consequently high level of capital which has to be maintained by banks.  It should also be borne in mind that different mortgage markets have their own individual characteristics which can impact on the level of mortgage rates in those markets. 

 I am of the view that increased competition within the context of an appropriately regulated mortgage market and making it easier to switch mortgages, as opposed to administrative controls, remains the best way to ensure that retail lending rates are reduced in a sustainable way for the market as a whole without giving rise to potentially undesirable consequences for the provision of new mortgage lending.  In that context, it should be acknowledged that there have been some recent improvements and increasing competition in the market for the provision of new mortgage credit.  Some non-bank lenders have recently entered the market or expanded their product range to include primary dwelling mortgages.  The Deputy will also be aware that over the recent past some of the main mortgage providers have reduced interest rates on different mortgage products or introduced new products, particularly in relation to fixed interest rate products, thus demonstrating that they are competing in the market.  Also, enhancements have been made to the Central Bank Consumer Protection Code in order to better facilitate the mortgage switching between lenders and also to require lenders to provide information to their borrowers on their other mortgage products that could provide savings to their customers.  These developments have increased the mortgage options for the benefit of existing and new borrowers.