Written Answers Nos. 122-136
122. Deputy Cormac Devlin asked the Minister for Transport given the impact of the Covid-19 pandemic, in particular with the advent of the B117 variant, if he will advise the actions he is taking to support taxi drivers; and if he will consider establishing a working group in his Department to liaise with stakeholders and set out a scheme to allow drivers over 65 years of age exit the industry; and if he will make a statement on the matter. [2950/21]
View answerI am aware of the challenges facing small public service vehicle (SPSV) operators of all ages. My Department and the National Transport Authority (NTA) have taken action throughout the pandemic and none of the measures are restricted in any way by the age of the driver or licence holder. Operators of all ages have benefited from the NTA's waiver of late renewal fees, extension of vehicle age limits and facilitation of insurance suspensions for any operators who decided to temporarily stop working.
The recent Budget contained a waiver of vehicle licence renewal fees for 2021, a measure which all licence-holders of all ages can benefit from. The Budget also contained a €15 million scrappage scheme for all SPSV operators with older vehicles.
I am aware that many SPSV operators have benefitted from the Pandemic Unemployment Payment (PUP), which I understand is not open to individuals over the age of 66. The PUP and its age criterion, and any other social protection payments to individuals over the age of 66, or any schemes for individuals going into retirement, are matters for my colleague, the Minister for Social Protection, Heather Humphreys T.D.
The Advisory Committee on Small Public Service Vehicles (SPSVs), also known as the Taxi Advisory Committee, has been established under legislation to provide both the Minister and the NTA with an informed view on relevant policy and regulatory matters that represents the balance of interests across the industry and related stakeholders. As such, it is the appropriate forum for dealing with issues affecting the sector, including the issues identified in the question, and I do not believe that it is either necessary or appropriate to establish another group as suggested by the Deputy.
123. Deputy Denis Naughten asked the Minister for Transport his plans to improve the standard of urban cycle lanes; and if he will make a statement on the matter. [2964/21]
View answerThe Deputy will acknowledge that the Programme for Government – Our Shared Future sets out an ambitious and wide-ranging set of commitments in relation to active travel, supported by an increased multi-annual budgetary allocation amounting to some €1.8 billion over the lifetime of the Government.
I believe he is right to highlight the need to improve the standard of our urban cycle lanes and there is a need to ensure that the type of investment planned in the coming years delivers high-quality, safe and segregated infrastructure that will attract more and more people to make the switch from the private car and toward a more sustainable, healthy mode of transport, such as cycling.
I think there are three critically important aspects to our collective plans in this area:
- A revision of the National Cycle Manual;
- Improved and expanded training of relevant stakeholders in relation to cycle design; and
- Adequate resourcing of local authorities.
I am pleased to say there is work underway or planned in relation to all three aspects.
The National Transport Authority (NTA) expects to shortly commence its review of the National Cycle Manual with a revised Manual expected to be available over the first half of the year. Development of the revised Manual will be accompanied by an extensive training programme to ensure its revised and improved standards are understood and disseminated widely across the sector.
In relation to resourcing the NTA has been working with local authorities in considering the resources required to deliver upon Government’s ambition in the area of active travel. I am committed to working with local authorities in relation to securing those resources and have recently written to the County and City Management Association (CCMA) indicting my support for the proposals developed thus far, committing to funding those proposals, and requesting the CCMA consider the proposals as appropriate to ensure the issue is progressed.
124. Deputy Denis Naughten asked the Minister for Transport the steps he is taking to reduce the emissions profile of the public transport fleet; and if he will make a statement on the matter. [2965/21]
View answerA key objective of my Department is to secure an efficient and low emission public transport system. As public transport is responsible for less than 5% of our transport emissions, in absolute terms, converting public transport fleets to low carbon alternatives will have a limited impact on national emission reductions. However, greening the public fleet does fulfil a strong leadership and demonstration role as we shift towards a low-carbon economy. To this end, I am committed to continuing to green the public transport fleet, and to making each public transport journey less carbon-intensive. A comprehensive programme of work is already underway, and there is a clear vision to move towards zero emitting vehicles.
The national bus fleet, which carries the majority of public transport passengers, is already moving to lower emission alternatives. During 2020, a total of 280 diesel-electric hybrid buses were ordered, which are plug-in hybrids allowing overnight charging and which have capability of over 2.5 km continuous running in zero emission mode, allowing sections of the routes to operate in this mode. A number of these vehicles were delivered during December and will enter into service over the coming weeks. A total of 100 such vehicles should be operational by the end of the first quarter of 2021, with the remaining 180 vehicles to be delivered during quarter 3 and quarter 4 of this year.
The NTA is currently tendering for the supply of single deck fully electric buses, the first of which will be introduced into town fleets in 2021. In addition, further such vehicles will be assigned to other urban city routes that are capable of being operated with single deck buses.
In relation to double deck fleet, the number of manufacturers of right-hand drive double deck buses is very limited, which has impacted the level of development of such vehicles. However, the NTA is satisfied that the available product is now mature enough, and capable of a sufficient range, to allow the purchase of double deck fully electric fleet for some urban city routes. Accordingly, a tender process has commenced for the purchase of double deck fully electric buses, with the first order expected to be placed later this year, and the first vehicles under that order arriving towards the end of next year.
In terms of heavy rail, we are expanding electrification through the DART+ programme which will ultimately mean around 70% of journeys in any given year on the rail network will be on electrified services, while in the interim we’re continuing to expand rail capacity through the ongoing construction of the National Train Control Centre and the ongoing manufacture of 41 additional carriages for the Greater Dublin Area commuter rail fleet. I also intend to commission a review of the rail network which will consider the potential for high-/higher- speed rail, including of course the potential electrification of the inter-urban network.
As regards our light rail network, we are currently expanding capacity of the Luas Green Line with the ongoing arrival of 26 tram extensions and 8 new additional trams which I expect will have entered service by Q2 2021. We will also look at route options for Luas Cork, Luas Lucan and the preliminary design for Luas Finglas. This year, I also intend to seek Government approval in relation to MetroLink, a new largely underground electrified metro service in Dublin, and likely the largest public investment project in the history of the State.
Furthermore, in the most recent Budget, I was delighted to announce an EV scrappage scheme to enhance the supports available for taxi and hackney drivers switching to electric vehicles. I hope to see a steady greening of our SPSV fleet over the coming years.
Collectively, these measures will see us progressively modernise and lower the emission profile of our public transport fleets, as well as creating an attractive alternative to the private car. As the Deputy is aware, I am fully committed to a shift to public transport and active travel as a means of decreasing transport emissions. We’ve seen some great additions to active travel infrastructure and our public realm in recent months, as Local Authorities across the country have put in place emergency measures to support local communities and businesses through our current difficulties. We want to build on these types of initiatives and support them through our commitment of €1.8bn over the lifetime of Government for active travel. This level of investment along with our significant investment in greening public transport will help improve quality of life and reduce emissions and air pollutants from the transport sector.
125. Deputy Bríd Smith asked the Minister for Finance the flat rate of VAT applicable to service providers such as breeders, trainers and kennel owners in the greyhound sector. [2846/21]
View answer126. Deputy Bríd Smith asked the Minister for Finance if the flat rate system of VAT could be applied within the greyhound sector if greyhounds were not classified as farm animals. [2847/21]
View answer127. Deputy Bríd Smith asked the Minister for Finance if the limit is applied to the turnover of a flat rate service provider in the greyhound sector which would require a service provider to register for VAT. [2848/21]
View answer128. Deputy Bríd Smith asked the Minister for Finance the amount of flat rate VAT being claimed by service providers in the greyhound sector. [2849/21]
View answer129. Deputy Bríd Smith asked the Minister for Finance if training, breeding and rehoming are classified as professional services, which attract a VAT rate of 23%; and if not, if they are classified as agricultural services to which the flat rate of VAT of 5.2% is applied. [2850/21]
View answerI propose to take Questions Nos. 125 to 129, inclusive, together.
I am advised by Revenue that under the provisions of the VAT Consolidation Act 2010 and the VAT Directive the use of the flat-rate scheme for farmers is restricted to farmers engaged in an agricultural, forestry or fisheries undertaking and to the engagement by those farmers in agricultural production activities and services as defined in the Directive. As the breeding of greyhounds would not come within the meaning of general stock farming and as the training, kennelling and rehoming of greyhounds could not be considered agricultural services normally playing a part in agricultural production, these activities would not come within the flat rate scheme for farmers.
Persons engaged in the sale of greyhounds or the training or kennelling of greyhounds would, where required to register for VAT because their supplies exceed the relevant registration thresholds, be required to charge VAT on those supplies at the appropriate rate. The supply of live greyhounds is subject to the reduced rate of VAT, currently 13.5% and the supply of training or kennelling is subject to the standard rate of VAT, currently 21%.
130. Deputy John Lahart asked the Minister for Finance his plans to instruct banks to allow mortgage approved customers to begin drawing down their mortgages despite their employers being on the employment wage subsidy scheme and in view of the fact that the employment wage subsidy scheme is likely to last until the end of 2021; and if he will make a statement on the matter. [2209/21]
View answerSince the COVID-19 situation first arose, I have maintained contact with the BPFI and lenders on the measures they have put in place to assist their customers who are economically impacted by the pandemic. In relation to the particular issue of new mortgage lending, the main retail banks previously confirmed that they are considering mortgage applications and mortgage drawdowns in relation to their customers who were on the Employment Wage Subsidy Scheme (EWSS) on a case by case basis and that they are taking a fair and balanced approach. Lenders continue to process mortgage applications and have supports in place to assist customers impacted by COVID-19. Therefore, if mortgage applicants have any queries or concerns about the impact of COVID-19 on their mortgage application, they should in the first instance contact their lender directly on the matter.
As the Deputy will know the operation of the EWSS and its effectiveness continues to be kept under close review especially in light of the introduction of the Level 5 public health restrictions, and under the legislation there is provision that the scheme may be kept in place until the end of June 2021. Beyond that, I have always been clear that there would be no cliff-end to the scheme and any further decisions in that regard will be made closer to that time.
More generally in relation to the provision of mortgage credit, there are certain consumer protection requirements. For example, the European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (CMCAR) provide that, before concluding a mortgage credit agreement, a lender must make a thorough assessment of the consumer’s creditworthiness with a view to verifying the prospect of the consumer being able to meet his or her obligations under the credit agreement. The CMCAR further provide that a lender should only make credit available to a consumer where the result of the creditworthiness assessment indicates that the consumer’s obligations resulting from the credit agreement are likely to be met in the manner required under that agreement. The assessment of creditworthiness must be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which are necessary, sufficient and proportionate.
In addition, the Central Bank’s Consumer Protection Code 2012 imposes ‘Knowing the Consumer and Suitability’ requirements on lenders. Under these requirements, lenders are required to assess affordability of credit and the suitability of a product or service based on the individual circumstances of each borrower. The Code specifies that the affordability assessment must include consideration of the information gathered on the borrower’s personal circumstances and financial situation. Furthermore, where a lender refuses a mortgage application, the CMCAR requires that the lender must inform the consumer without delay of the refusal. In addition, the Code requires that the lender must clearly outline to the consumer the reasons why the credit was not approved, and provide these reasons on paper if requested.
Within this regulatory framework, the decision to grant or refuse an application for mortgage credit remains a commercial matter for the individual lender. Also a loan offer may contain a condition that would allow the lender to withdraw or vary the offer if in the lender’s opinion there is any material change in circumstances prior to drawdown. In such cases, the decision to withdraw or vary the offer is also a commercial decision for the lender.
Nevertheless, the Central Bank has indicated that it expects all regulated firms to take a consumer-focused approach and to act in their customers’ best interests at all times, including during the COVID-19 pandemic. If a mortgage applicant is not satisfied with how a regulated firm is dealing with them in relation to an application for credit, or they believe that the regulated firm is not following the requirements of the Central Bank’s codes and regulations or other financial services law, they should make a complaint directly to the regulated firm. If the mortgage applicant is still not satisfied with the response from the regulated firm, he or she can refer the complaint to the statutory Financial Services and Pensions Ombudsman.
131. Deputy Neale Richmond asked the Minister for Finance if he has considered requesting that the Revenue Commissioners examine the finances of an organisation (details supplied) following its move from the UK to Waterford to ensure it is compliant with all the rules of this jurisdiction; and if he will make a statement on the matter. [2211/21]
View answerAs the Deputy is aware, the tax affairs of identified individual taxpayers, including companies, cannot be disclosed due to the obligation to protect taxpayer confidentiality as provided for by section 851A of the Taxes Consolidation Act, 1997. It is an offence for a Revenue official to directly or indirectly disclose taxpayer information to third parties, including the Minister for Finance, unless this is specifically provided for in legislation. Therefore, neither Revenue nor I can comment on the tax affairs of any individual or company.
However, I can assure you that Ireland has a transparent tax code, with the liability to Irish corporation tax being primarily determined by a company’s tax residence. In general, Irish tax resident companies pay tax on their worldwide income and chargeable gains. Non-resident companies pay Irish corporation tax on their Irish source income. Non-residents also pay tax in Ireland in respect of chargeable gains accruing to them from the disposal of Irish assets (for example, land, buildings and minerals in Ireland). Where tax reliefs or credits exist to reduce a company’s Irish tax liability, they are provided for in legislation and may only be availed of where the legislative criteria for relief are satisfied. Compliance with these tax obligations and eligibility for tax reliefs are monitored by Revenue on an ongoing basis.
132. Deputy Martin Kenny asked the Minister for Finance if the Revenue Commissioners will amend the way in which it taxes benefit-in-kind for company cars for 2021 due to the fact that Covid-19 restrictions are preventing companies and employees from travelling for business and the mileage in company cars will be greatly reduced; and if he will make a statement on the matter. [2215/21]
View answer145. Deputy Dara Calleary asked the Minister for Finance if the Covid-19 concessionary arrangements in place for the treatment of company cars via benefit-in-kind have been extended into 2021; and if so, the arrangements for same. [2469/21]
View answer147. Deputy Marc MacSharry asked the Minister for Finance if clarity will be provided on the benefit-in-kind treatment for tax purposes for company cars for 2021; and if he will make a statement on the matter. [2516/21]
View answer152. Deputy Michael Ring asked the Minister for Finance if the interim measure on the reduction in benefit-in-kind rates on company cars will be extended into 2021. [2631/21]
View answerI propose to take Questions Nos. 132, 145, 147 and 152 together.
In March 2020 Revenue introduced a short-term concessionary measure in relation to the operation of benefit-in-kind (BIK) on employer-provided vehicles having regard to the unprecedented situation arising as a result of the COVID-19 pandemic.
The concessionary treatment applicable to BIK on employer-provided vehicles, along with all other COVID-19 related measures, is kept under regular review by Revenue. In early December 2020, and as the public health restriction at the time began to ease and businesses reopen, Revenue confirmed that the concessionary measure related to employer-provided vehicles would cease to apply on 31 December 2020 and, with effect from 1 January 2021, BIK on same should be calculated in the usual manner.
However, since then, Level 5 public health restrictions have been subsequently introduced. On 24 December 2020, all restaurants, cafés and gastro pubs as well as personal services, such as hairdressers, beauticians and barbers closed, while hotels, guesthouses and B&Bs remain open but are restricted to essential non-social and non-tourist services only. Additionally, on 31 December all non-essential retail as well as gyms, leisure centres and swimming pools closed. For employees, the public health advice is to work from home in all instances unless work is an essential health, social care or other essential service that cannot be done from home.
Having regard to the current public health restrictions Revenue confirmed in eBrief 004/2021, which issued on 14th January 2021, that the short-term concessionary measures announced back in March will remain in place. This means that, for the time being:
- Where an employer takes back possession of the vehicle and an employee has no access to the vehicle, no BIK shall apply for the period.
- Where an employee retains possession of a vehicle, but the employer prohibits the use of the vehicle, no BIK shall apply if the vehicle is not used for private use.
Records should be maintained to show that the employer has prohibited its use and no such use has occurred, for example communication from employer, photographic evidence of odometer, etc.
Where an employee has a car provided by his or her employer and
1. the circumstances in the previous example don’t apply,
2. limited or reduced business mileage (if any) is undertaken due to the COVID-19 crisis, and
3. personal use is limited
the amount of business mileage travelled in January 2020 may be used as a base month for the purposes of calculating the amount of BIK due. Thus, the percentage applied in the calculation of the cash equivalent, which is based on annualised business mileage, may have regard to the actual business mileage for January 2020, for the current period of the COVID-19 restrictions. Appropriate records should be kept, for example business mileage travelled in January, amount of private use, photographic evidence of odometer etc.
Guidance on the above and other COVID-19 related matters can be found on Revenue’s website*.
Due to the nature of the COVID-19 pandemic it is not known how long any COVID-19 restrictions will ultimately remain in place. Revenue will however continue to regularly review all COVID-19 related matters (including the provisions relating to BIK on employer-provided vehicles) and if any further measures are considered necessary in the future, updated guidance will be made available by Revenue in relation to same as soon as possible.
*https://www.revenue.ie/en/corporate/communications/covid19/compliance-with-certain-reporting-and-filing-obligations.aspx
133. Deputy Dara Calleary asked the Minister for Finance the arrangements for the application of margin schemes for VAT post Brexit, in particular for second-hand goods. [2230/21]
View answer155. Deputy Alan Dillon asked the Minister for Finance if clarity will be provided regarding the margin schemes for VAT purposes following the end of the Brexit transitional period, in particular for Irish businesses importing second-hand moveable goods for a sector (details supplied); if they will be able to continue with same; and if he will make a statement on the matter. [2698/21]
View answerI propose to take Questions Nos. 133 and 155 together.
As provided for in the Withdrawal Agreement and the Protocol on Ireland/Northern Ireland, Northern Ireland will remain within the EU VAT regime in respect of goods and therefore the trade in goods including second-hand goods between Ireland and Northern Ireland will continue as before from a VAT perspective. However, imports from Great Britain, including imports of second-hand goods, must be declared to Customs and are liable to customs duty, where applicable, and VAT at importation.
I am advised by Revenue that there is a special scheme known as the ‘extended margin scheme’ available to art and antique dealers established in the State. Subject to conditions, the margin scheme can be applied by an accountable dealer in respect of all sales of certain works of art, collectors’ items or antiques which are imported from outside the EU including from Great Britain. A dealer can opt to apply the scheme simply by not claiming a VAT input credit in respect of the VAT paid on the importation of the goods in question.
Further information on the margin scheme can be found on the Revenue website.
134. Deputy Cathal Crowe asked the Minister for Finance if the terms of the Covid restrictions support scheme can be amended to take into consideration seasonal companies such as a company (details supplied). [2255/21]
View answer135. Deputy Cathal Crowe asked the Minister for Finance if his attention has been drawn to an anomaly with the Covid restrictions support scheme whereby seasonal business owners with fluctuating incomes are losing out due to the requirement to compare the same week in two consecutive years with each other; and if he will make a statement on the matter. [2256/21]
View answer139. Deputy Joe O'Brien asked the Minister for Finance his plans to provide supports to supplier businesses that are ineligible to avail of the Covid restrictions support scheme but are typically reliant on other businesses that are now closed for custom, for example dry cleaners; and if he will make a statement on the matter. [2322/21]
View answer160. Deputy Pádraig O'Sullivan asked the Minister for Finance if he will extend eligibility of the Covid restrictions support scheme to camping and caravan parks given the severe impact of the Covid-19 restrictions on this sector; if he will reconsider the current classification of camping and caravan parks as an outdoor activity given that they are registered and approved accommodation providers that operate from fixed business premises; and if he will make a statement on the matter. [2812/21]
View answerI propose to take Questions Nos. 134, 135, 139 and 160 together.
The Covid Restrictions Support Scheme (CRSS) is a targeted support for businesses significantly impacted by restrictions introduced by the Government under public health regulations to combat the effects of the Covid-19 pandemic. Details of the scheme are set out in Finance Act 2020 and detailed guidelines on the operation of the scheme are available on the Revenue website at:
https://www.revenue.ie/en/corporate/press-office/budget-information/2021/crss-guidelines.pdf .
To be eligible to make a claim under CRSS, a business must, under the specific terms of the public health regulations, be required to either prohibit, or significantly restrict, customers from accessing its business premises to purchase goods or services, with the result that, during the period of restrictions, turnover does not exceed an amount based on 25% of the average weekly turnover of the business in 2019 (or in 2020 in the case of a new business). Where all the eligibility criteria are met, a business will be able to claim support under the scheme based on a percentage of the average weekly turnover in 2019 (or in 2020 in the case of a new business). The support assists eligible businesses in meeting the costs associated with their business premises at a time when, because of the specific terms of the restrictions, they cannot, for a period of time, provide goods or services to their customers or can only do so to a limited extent. For the purposes of CRSS, a qualifying “business premises” is a building or other similar fixed physical structure in which a business activity is ordinarily carried on.
Where a business does not ordinarily operate from a fixed business premises, such as a camping or caravan site or a boat charter business, that business will not meet the eligibility criteria for CRSS.
It is not sufficient that the trade of a business has been impacted because of a reduction in customer demand as a consequence of Covid-19 such as a dry cleaning business. The scheme only applies where, as a direct result of the specific terms of the Government restrictions, the business is required to either prohibit or restrict access to its business premises.
For seasonal business, as with all other businesses, it is the average weekly turnover in 2019 (or in 2020 in certain cases) that must be considered for the purpose of determining whether the reduction in turnover requirement is met. Similarly, as for all businesses, it is the average weekly turnover of a seasonal business in 2019 (or 2020 in certain cases) which will determine the amount of support available to the business under the scheme where it meets the eligibility criteria.
One of the eligibility requirements for CRSS is that a business would carry on its trading activities during the period of restrictions but for the public health regulations requiring the business to prohibit or significantly restrict customers from accessing its business premises. Any reduction in turnover of the business during the period of restrictions must relate to those restrictions. Where a seasonal business would not ordinarily operate during a period of restrictions, for example it operates during summer months only and the restrictions occur in winter months, it will not be able to demonstrate that any reduction in turnover during the period of restrictions relates to the public health restrictions or that it would have operated but for those restrictions. Therefore, the business would not be eligible to claim under CRSS.
There may be circumstances, however, where a seasonal business intended to trade outside of its historical trading patterns in order to compensate for reduced trade during its normal season. If a seasonal business can demonstrate to Revenue, from bookings that had to be cancelled for example, that it intended to trade during a period for which public health restrictions apply, and it meets all of the eligibility criteria, it will be eligible to claim under CRSS.
Businesses who do not qualify under this scheme may be entitled to support under various measures put in place by Government, including existing supports available under the COVID Pandemic Unemployment Payment (PUP) and the Employment Wage Subsidy Scheme (EWSS) and the range of measures announced as part of Budget 2021 to support particular sectors including Tourism and live entertainment. They may also be eligible to warehouse VAT and PAYE (Employer) debts and also excess payments received by employers under the Temporary Wage Subsidy Scheme, and the balance of Income Tax for 2019 and Preliminary Tax for 2020 for self-assessed taxpayers if applicable.
The Government will continue to assess the effects of the Covid-19 pandemic on the economy and I will continue to work with Ministerial colleagues to ensure that appropriate supports are in place to mitigate these effects.
136. Deputy Cathal Crowe asked the Minister for Finance if consideration will be given to adopting a mortgage lending model similar to Denmark in which borrowers are offered 0% interest for up to 20 years; and if a case may be made to the European Central Bank to implement this model in response to the Covid-19 crisis. [2261/21]
View answerThere is a wide diversity in national mortgage markets, and such mortgage markets have evolved and developed over time having regard to their particular social, economic and other characteristics. Fixed rate mortgages of long duration are popular in Denmark and in some other countries, but other countries tend to have markets where variable or short term fixed interest rates are more prominent. Also individual economic and other circumstances will influence the prevailing level of mortgage and interest rates in a country; for example, Denmark is not in the eurozone but it seeks to link the value of its currency with the euro and this will have a particular impact on the official and market interest rates for borrowings in the Danish currency. On the other hand in relation to Ireland and other eurozone countries, the European Central Bank (ECB) currently engages in a bank funding model which aims to stimulate lending to businesses: i.e. the TLTRO. This scheme operates over a three-year horizon, and offers beneficial borrowing costs to banks who use the ECB funding to issue loans to businesses. This type of scheme is not designed to offer targeting funding over long durations such as in the Danish model. More generally of course, the ECB is independent in the formulation and implementation of monetary policy for the eurozone area. Nevertheless, it can be noted that mortgage markets will change and evolve over time and in Ireland there has been an increase in the market for 1-5 year mortgage interest rate fixations over the past number of years.
In relation to the relative merits of fixed versus variable rate mortgage types, the Central Bank of Ireland has undertaken some research on this issue and it suggests that a move towards longer-dated fixation periods, such as those seen in Denmark or the USA, would require careful consideration. The Government is aware of this and, as the Deputy will be aware, the Programme for Government is committed to looking at the issue of long term fixed rate mortgages.
There are benefits to long-duration fixed-rate mortgages. They provide borrowers with mortgage repayment certainty which aids financial planning. In a low-interest rate environment, they also increase borrower resilience by locking in cheaper borrowing costs, insulating borrowers from future rate increases.
On the other hand long-term fixed rate mortgages also come with significant risks, the most important of which as suggested by the Central Bank relates to bank profitability. When banks issue long-term fixed rate loans, they leave themselves exposed to interest rate risk: if their funding costs rise during the duration of the loan’s lifetime, their profitability will decrease. There are a number of strategies available to manage this interest rate risk. Currently, it appears that Irish banks are using private market solutions (hedging, swap markets) to manage the interest rate risk on their shorter-duration interest rate fixations.
However, it is also not clear that one type of mortgage market (or mortgage interest rate type) will automatically deliver lower interest rates than another type; rather it is likely that more fundamental market factors, such as the performance of the market, mortgage funding costs, level of mortgage default, the ease and cost of access to the security if necessary consequent upon default, regulatory requirements, competition and profitability etc. will also have a significant influence on prevailing mortgage variable and fixed interest rates. In this context the Central Bank has suggested that, while acknowledging that the setting of their mortgage and other lending rates are commercial matters for individual lenders, there are a range of factors and costs which must be covered by the mortgage interest rate which would imply that a zero per cent interest rate as seen in Denmark would not be likely or appropriate in the Irish setting. Some of these factors are:
- Higher Capital Requirements: The more risky a bank’s assets are, the higher a bank’s capital requirement. This is to ensure that banks can sustain losses, when they occur, without risking the bank’s survival. Irish retail banks’ mortgage modelled Risk Weighted Assets are 1.5-2.5 times the EU average. This results primarily from the relatively high historic credit risk experience in Ireland, the longer workout process and uncertainty in relation to collateral realisation and the relatively elevated levels of NPLs and restructured loans in Irish banks. These higher capital requirements increase the cost of lending for banks, but now leave them in a more resilient position.
- NPL’s and restructured loans: are higher for Irish banks than most other European peers. Provisions/losses and capital requirements are higher for these loans, reflecting their higher risk. This results in higher credit and capital costs for the Irish banks.
- Higher cost-to-income: growing cost inefficiencies have been a characteristic of the Irish banking sector in recent years. Since 2017, the Irish banking sector, on average, is now performing worse on a cost-to-income basis relative to its European counterparts.
- Competition: In comparison to other jurisdictions such as the UK, there are lower levels of competition in the Irish banking market. Resulting from limited competition and low levels of switching, pricing will tend to be higher. Nevertheless, even within the current Irish market, consumers can reduce average pricing in the mortgage market by availing of switching options to ensure that recent and potential future price reductions through increased competition pass through to the greatest number of customers possible. A recent study by the Central Bank estimates that three in every five ‘eligible’ mortgages for principal dwelling homes stand to save over €1,000 within the first year if they switch and €10,000 over the remaining term.
It should also be noted that Irish mortgages can have different characteristics from those offered by other EU banks making direct comparison of headline mortgage rates inconsistent. For example, many Irish banks include cash back offers, which reduce the effective Irish mortgage interest rate. In addition, Irish mortgages are not subject to upfront fees typically charged by banks in other EU jurisdictions, which can result in lower EU headline rates.
