Dáil Éireann Debate, Tuesday - 22 February 2022
276. Deputy Bernard J. Durkan asked the Minister for Finance if he will engage with the Central Bank and the main banks now operating in this jurisdiction with a view to ensuring the availability of home mortgages on an equal basis to residents throughout the rest of the European Union with particular reference to the need to observe the single market in terms of availability and interest costs; and if he will make a statement on the matter. [10031/22]
View answer277. Deputy Bernard J. Durkan asked the Minister for Finance the way the average cost of a home loan here compares with the least expensive throughout the European Union; and if he will make a statement on the matter. [10032/22]
View answer280. Deputy Bernard J. Durkan asked the Minister for Finance if he is satisfied that Irish banks are adequately meeting the requirements of home borrowers; and if he will make a statement on the matter. [10035/22]
View answerI propose to take Questions Nos. 276, 277 and 280 together.
As Minister for Finance I cannot determine the lending policies of individual banks, including where they decide to offer residential mortgages and the interest rates they charge for such loans. However, it should be noted that any bank authorised in an EU Member State is permitted to offer mortgages to Irish consumers if they wish to.
In terms of Irish banks adequately meeting the requirements of home borrowers, the Central Bank has advised that the volume of new mortgage agreements from Irish resident banks amounted to €955 million in December 2021, the same amount as December 2020. It also represents a 13 per cent increase compared with November 2021. Separately BPFI data indicates that in overall terms, almost €10.5bn in new mortgage lending was drawn down in 2021, the highest level of annual lending since 2008. More than half of this lending was drawn down by first time buyers.
More generally, there is also an increasing range of diversity of mortgage products now available to consumers, with different mortgage lenders seeking to focus on or be more competitive in a particular part of the market. Also new entrants have recently come into the market and a number of lenders now offer very long term fixed mortgage interest rate products to consumers.
Furthermore, some lenders are offering “green” mortgages at competitive rates to customers who intend to apply for a mortgage to buy a property with a high energy efficient rating or to improve a property by bringing it up to a high energy efficient rating.
I am aware that the general level of new lending interest rates in Ireland are higher than is the case in many other European countries. However, the price lenders charge for their loans is a commercial matter for individual lenders. Despite this, 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 2.69% in December 2021.
The Central Bank has advised that caution should be used in making direct comparisons, given that cash back offers and mortgage fees are features of some markets, and will alter the overall cost of credit for a mortgage borrower relative to that reported in interest rate statistics.
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 generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.
There are also a number of important factors which will likely influence the interest rates charged on Irish mortgages. These include for example 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 (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks); and
- higher cost-to-income ratios which has been a characteristic of the Irish banking sector in recent years.
In relation to the availability of mortgages, while competition issues generally are primarily a matter for the Competition and Consumer Protection Commission, competitive pressures in the banking sector can clearly have an effect on the functioning of the financial system and the on the quality and price of credit and other banking services provided to customers.
The Irish retail banking system is relatively concentrated by international standards and the recent decisions by some banks to leave the Irish market will further impact on this. However, against this as noted above some new lenders have entered the market and are playing a greater role in the provision of new mortgage lending. Even in a concentrated banking system such as that in place in recent years, price competition is possible, particularly in a growing economy and trends show that interest rates in Ireland have been falling in recent years, providing benefit to consumers.
However, I fully appreciate that enhanced sustainable competition in the credit and banking market more generally will be of benefit to consumers and other borrowers. Accordingly, the review of the retail banking market which is now underway in my Department will assess various aspects of the banking market and will consider options to encourage greater competition in the credit and banking market, including possible options to develop the mortgage market.
