Dáil Éireann Debate, Thursday - 22 June 2023
103. Deputy Paul Murphy asked the Minister for Finance if he will introduce a cap on mortgage interest rates to prevent families being forced into poverty and homelessness by rising interest rates; and if he will make a statement on the matter. [30164/23]
View answerThe formulation and implementation of monetary policy is an independent matter for the European Central Bank (ECB) and, as the Deputy is aware, the ECB has increased official interest rates over recent months as it attempts to combat inflation.
The level of official interest rates influences the overall level of interest rates throughout the economy. However, the setting of retail lending rates by individual lenders is a commercial matter for that lender and I have no function or role in such decision making matters by financial institutions.
Despite this, there are a number of measures are in place to support households facing rising interest rates. In particular, the Central Bank has introduced a number of increased protections for variable rate mortgage holders which can which help mortgage holders identify lower cost mortgage options.
Firstly it made changes to the Consumer Protection Code to require mortgage creditors to explain to borrowers how their non tracker variable interest rates have been set and to clearly identify the factors which may result in changes to variable interest rates.
Secondly, it also increased the level of information lenders are required to provide their customers including where there is a possibility for the borrower to move to a lower ‘loan to value’ interest rate band and signpost the borrower to the Competition and Consumer Protection Commission's mortgage switching tool.
More recently, the Central Bank wrote to all regulated firms last November to set out its expectations on how regulated firms should support their customers. With respect to mortgages, the Central Bank is especially focused on ensuring that firms have the resources and arrangements in place to assess applications from existing and new or switching borrowers in a manner that is timely and based on prudent lending standards applied consistently across all applicants.
Further, as the Deputy is aware, Budget 2023 contained many measures to assist families with the increased cost of living. In addition on 21 Feb 2023, an extra €1.2 billion was provided to help households and businesses to meet cost of living increases.
I am nevertheless very aware that some borrowers will experience repayment difficulty due to the current interest rate environment and the cost of living more generally. This is why the measures and protections contained in the Code of Conduct on Mortgage Arrears (CCMA) are important to highlight.
The CCMA sets out the process that entities must follow when a borrower is in or facing difficulties with their mortgage payments and it states that all arrears cases must be handled sympathetically and positively by the regulated entity, with the objective at all times of assisting the borrower to meet his or her mortgage obligations.
Also the other measures which are in place, such as the advice and supports available from MABS and other under the 'Abhaile' scheme and the personal insolvency frameworks which are delivering long term arrangements to insolvent borrowers are important and should be utilised by borrowers in mortgage difficulty.
On the issue of capping interest rates, the Governor of the Central Bank has set out that the Bank has serious reservations at the prospect of policy interventions that seek to regulate the setting of interest rates by financial institutions.
This is grounded on the appropriate responsibility for the management of risk as a core function of the financial system; the need to ensure a competitive market for consumers; the risk of interfering with the transmission of the ECB's monetary policy transmission mechanism; and the importance of fair price formation in an open market.
I believe that the consumer protection framework and supports available are the most appropriate means to support borrowers who are experiencing repayment difficulties due to rising interest rates.
Whereas imposing caps on mortgage interest rates has the potential for unintended consequences for current and future mortgage holders.
