Dáil Éireann Debate, Tuesday - 15 June 2021
407. Deputy Bernard J. Durkan asked the Minister for Finance when Irish home borrowers can borrow at similar interest rates to that available throughout Europe; and if he will make a statement on the matter. [32089/21]
View answer408. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that the single market rules apply in relation to interest rates charged throughout the European Union and their applicability to all countries including Ireland; and if he will make a statement on the matter. [32090/21]
View answerI propose to take Questions Nos. 407 and 408 together.
There have been certain developments to promote the closer integration of banking and credit markets in the EU. For example, credit institutions authorised in one EU Member State can, with minimal additional requirements, provide banking services in other EU states. In addition, there have been developments, such as the Mortgage Credit Directive and the Consumer Credit Directive, which seek to promote a more harmonised market for the provision of credit to consumers across the EU. However, this does not mean there will be a single price for any particular type of credit across the EU. There are many factors, such as differences in national legal and housing systems, cultural preferences, language, the proximity of lenders to borrowers, which will continue to inhibit the full integration of the market for mortgage and other consumer credit in the EU. More directly, differences in the nature of mortgage and other credit markets, credit and market conditions, mortgage default rates and the funding of mortgage and other credit will also impact on the levels of interest lending rates between and within different EU countries.
I am aware that the general level of lending interest rates in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that certain mortgage rates have been falling in Ireland. For example, the interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.8% at end-April 2021.
However, as I have indicated on a number of occasions, Irish mortgage and other loans can have different characteristics from those offered in other countries. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Also Irish mortgages are also generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.
Nevertheless, there are a number of important factors which will likely influence the interest rates charged on Irish mortgages. These include operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:
- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;
- the level of non-performing loans which is higher in Ireland relative to other European banks;
- different cost-to-income ratios among banks;
- there are lower levels of competition in the Irish banking market compared to other jurisdictions (however, it is noted that a new entrant has recently entered the residential mortgage market and that it is offering fixed rate mortgages at competitive interest rates).
Specifically in relation to mortgages, the Central Bank has a range of measures to protect consumers. The consumer protection framework requires lenders to be transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle; through protections at the initial marketing/advertising stage, in assessing the affordability and suitability of the mortgage and at a time when borrowers may find themselves in financial difficulties. In particular, the Central Bank introduced of a number of increased protections for variable rate mortgage holders which came into effect in February 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, 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.
The Central Bank also introduced additional changes to the Consumer Protection Code in January 2019 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. 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. Indeed the Central Bank advises that a recent study by it estimated 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 remain term.
Ultimately, however, the price lenders charge for their loans is a commercial matter for individual lenders. As Minister for Finance I cannot determine the lending policies of individual banks including the interest rates they charge for loans including mortgages. Nevertheless, I will continue to work with the Central Bank and also engage with lenders to encourage, within a framework which seeks to maintain overall financial stability, greater price and other competition in the mortgage market, both for new and existing borrowers.
