Priority Questions

Mortgage Lending

Michael McGrath


1. Deputy Michael McGrath asked the Minister for Finance if he has asked the Central Bank of Ireland to carry out a review of residential mortgage lending rules; his views on the apparent inability of first-time buyers to obtain a mortgage, despite evidence of repayment capacity; if he is aware of the difficulties of families seeking to trade up to a property more suited to their circumstances; and if he will make a statement on the matter. [40509/15]

I raise with the Minister the new Central Bank rules on deposits for mortgages. In particular, I want to ask him if he has asked the Central Bank to review the operation and impact of these macro-prudential rules which are undoubtedly having a significant impact on the ability of first-time buyers to purchase a home and of many families who are currently in an unsuitable dwelling or apartment to trade up because they are now subject to the full 20% rule. Both the Minister for Finance and the Minister for the Environment, Community and Local Government, Deputy Kelly, have made adverse comments on these rules and I would like to know if the Minister has requested the Central Bank to conduct a review of these new mortgage deposit rules.

The Central Bank of Ireland, in line with its mandate to safeguard financial stability, has put in place new macro-prudential measures for residential mortgage lending effective from last February. These measures apply proportionate loan-to-value and loan-to-income limits to mortgage lending by regulated financial service providers in the Irish market. The key objective of these measures is to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future. This is of particular significance for Ireland given that mortgage lending constitutes a large part of overall bank lending.

In its submission to the public consultation process undertaken by the Central Bank on its proposals last year, my Department recognised that there was a sound rationale for the introduction of macro-prudential measures in Ireland but also indicated that it would be appropriate to keep the particular measures as adopted under review from time to time. Certain other issues such as the particular position of first-time buyers were also referenced. While the Central Bank is independent in the setting of such macro prudential measures, these points were recognised by the bank. As the Deputy will be aware, the Central Bank allowed a higher loan to value threshold of 90% for first-time buyers of properties valued up to €220,000 and it also indicated that it would monitor the impact of the implemented measures on an ongoing basis, in particular with regard to achieving the stated objectives of the measures and monitoring any unintended consequences.

At official level, my Department and the Central Bank have a close working relationship on all areas of mutual interest, including that of macro-prudential policy. In addition, I maintained close contact with the outgoing Governor and I look forward to also liaising closely with the incoming Governor. I fully respect the independence of the Central Bank to set macro-prudential policy in the best interest of overall financial stability. The Central Bank has indicated that it is actively monitoring the impact of the new measures on an ongoing basis.

Just to be clear, I also fully respect the independence of the Central Bank but that does not take from my right as a public representative to take a view on these measures. In reality, the Department of Finance is in very close contact on a day-to-day basis with the Central Bank. I am not advocating in any sense a return to the type of lending we had in the past. I believe there should be a minimum deposit requirement and that around 10% is appropriate. I also believe that mortgage applications should be very stringently stress tested and the capacity to repay the loan should be the primary determinant of whether a mortgage is sanctioned. That said, the Minister cannot take away from the fact that these measures will have a very significant social impact. Home ownership levels are certainly going to fall. These rules have put home ownership beyond the reach of many, despite their ability to repay a mortgage. People who are paying enormous rents at the moment cannot save and simply will not be able to get a mortgage. Equally, we have thousands of families now trapped in apartments and other unsuitable accommodation from which they need to move. They will require a full 20% deposit in respect of the purchase price of any new home.

Reading between the lines, it seems the Minister is not very happy with these rules but he has not done anything about it as far as I can see. Is he satisfied with these rules being in place and with the fact the Central Bank says it is actively monitoring their effect? Does he intend to go further and does he have the power to seek a formal review of these rules and their impact?

Deputy McGrath's allegation that I am not going to do anything about it suggests that he does not fully understand the statutory position of the Central Bank-----

-----and that it is independent in the exercise of its functions.

These rules were introduced last February and only apply to mortgages that were sought and approved since then, so there is a limited amount of data available. The bank usually reviews these things on an ongoing basis. It is not a question of one review. It monitors the data to determine the effect of measures such as these.

Recent data published by the Banking and Payments Federation Ireland indicate that residential mortgage lending in the nine months to the end of September amounted to €3.4 billion, which was 35% higher than the same period last year. The data also show that the value of drawdowns by first-time buyers in the third quarter was at its highest level this year. The data coming through do not suggest that the macro-prudential rules have stopped the flow of mortgages. The value of mortgages since the rules were introduced has actually risen by 35% and the third quarter of this year was the strongest quarter for the issuing of mortgages.

I would expect the Central Bank to monitor the data on an ongoing basis and we will see where they land. These things are very difficult because there are risks on both sides, as the Deputy pointed out. The Central Bank has the statutory authority to deal with this.

While the data indicate that mortgage lending is picking up, it is coming from a position where it had collapsed completely. As the Minister has also pointed out on many occasions, percentage based statistics can be very misleading.

The level of mortgage lending is exceptionally low. From my daily dealings with constituents, it is clear that their ability to access a mortgage has been severely hampered. The recent changes introduced by the Central Bank are a form of social engineering which will place home ownership beyond the reach of thousands of families. Perhaps this is a strategy or vision for the future. People who have married or had a couple of children since moving into an apartment and wish to move into a more suitable home are trapped because they will not be able to meet the new requirements. The Central Bank has provided limited leeway for the banks to extend mortgages outside the rules but feedback suggests this leeway has been exhausted and that the banks are not in a position to lend new mortgages outside the strict rules in place. I ask the Minister to acknowledge that the Central Bank's rules for mortgage lending are having an impact. As far as I can discern, its primary motivation has been to protect the banks and give them an additional buffer in the event of property prices falling, loans entering arrears and repossessions taking place. While the new rules protect the balance sheets of the banks, they are not in the interests of ordinary people who have a legitimate aspiration to own their own home.

Again, I thank the Deputy for his intervention. The 35% increase in mortgage lending to date this year is not only a big increase from a low base, as I indicated, at €3.4 billion, it also amounts to a good wedge of money going into mortgages. If the figure is increasing at a rate of more than 30%, it will, over a few years, return to a significant amount.

The Deputy ascribes all sorts of motive to the Central Bank. The Central Bank has placed on record the reasons for its decision to introduce new lending rules. Housing prices, particularly in Dublin, were escalating rapidly at the time and the position looked a little scary just after Christmas last year.

The problem is a lack of supply.

There was also considerable commentary in the newspapers suggesting we were heading straight back to a housing spiral, which would result in inflated housing prices, more people being in negative equity and another bust.

Homes are not being built.

"Housing bubble" is the phrase that is usually used in this context. Whether the Central Bank was right or wrong, there is no argument about the reasons it intervened. It did so because it feared another housing bubble which would lead to an economic collapse. My position is that it constantly collects data and is engaged in an ongoing review of the matter. If it believes the rules need to be modulated, I am sure it will act. However, the rules have not yet been in place for 12 months and a period of at least 12 months is needed to determine the effects of the measures.

Mortgage Arrears Proposals

Pearse Doherty


2. Deputy Pearse Doherty asked the Minister for Finance his plans for additional measures to tackle the ongoing mortgage crisis and the repossession crisis, including through legislative and policy changes. [40616/15]

I object in the strongest possible terms to the decision to rule out of order a number of questions my colleagues and I had tabled to the Minister. It makes a farce of the House that elected Members are being prevented from asking him questions related to the ongoing IBRC investigation, including the role played by the Department and when the Minister became aware of the difficulties. He can step out on the Plinth and anyone with a membership card for the National Union of Journalists or media accreditation can ask him the same questions, while democratically elected Deputies are not entitled to ask them in the Chamber. The rules are an absolute farce and members of the public see them as such.

My question asks what additional measures, including legislative and policy changes, the Minister plans to introduce to tackle the ongoing housing and repossession crises. This issue has not gone way, despite the fact that we are in the dying days of the Government's term in office. What, if anything, does it intend to do to deal with the crises?

On the Deputy's first point, neither I nor the Department rules any question out of order. Questions are ruled out of order by the Ceann Comhairle on the advice of his office.

The Government has made significant efforts to deal with the issue of mortgage arrears. Central Bank data for the second quarter of 2015 which were published on 2 September show just how much progress has been made. The number of principal dwelling home mortgages in arrears continued to fall in the quarter, marking the eighth consecutive quarter of decline and a 22% reduction since the second quarter of 2014. In addition, the Central Bank data show the impact made when borrowers engage with their lenders. Almost 120,000 principal dwelling home mortgages were classified as restructured at the end of the second quarter of 2015, meaning that families can, by working with their financial institutions, find a mechanism to make their mortgage commitments affordable. Of the restructured accounts, more than 86% were deemed to be meeting the terms of their current restructure arrangement.

The Deputy will be aware of the code of conduct on mortgage arrears which provides a strong consumer protection framework for co­operating borrowers to ensure they are treated in a fair and transparent manner by their lenders. Last May the Government also announced further measures to help indebted borrowers and increase awareness of and access to the insolvency framework. Building on action previously taken, the measures include the reform of the personal insolvency framework to give the courts the power to review and, where appropriate, approve insolvency deals that have been rejected by creditors. I understand my colleague, the Minister for Justice and Equality, Deputy Frances Fitzgerald, expects to sign a commencement order later this week to bring the court review provisions of the Personal Insolvency (Amendment) Act 2015 into effect.

In addition, the role of the Money Advice & Budgeting Service, MABS, has been enhanced. Representatives of MABS and the Insolvency Service of Ireland are now present at court sessions to offer support and advice to borrowers who are the subject of repossession proceedings.

I am not sure if the Minister is aware of this, but the crisis has not gone away. In the dying months of the Government's term of office, 98,137 people are in mortgage arrears. Croke Park could not hold the principal of all of the households where the mortgage on the family home is in arrears. Reports indicate that 4,440 requests for repossession were made to the Courts Service in the first nine months of 2015, of which 3,638 were related to family homes. The number of repossession orders granted is also increasing. In 2013 the figure stood at 244. By 2014 it had increased to 644 and for first nine months of 2015 stood at 1,088. These figures reflect an increase of more than 400% in two years and refer solely to orders that have been granted. Individuals and families have also been pressed to sign on the dotted line, thereby surrendering their homes voluntarily because they do not have any other option. The weakening by the Government of the code of conduct on mortgage arrears and its introduction of repossession provisions within the framework of the Land and Conveyancing Law Reform Act allow the banks to do what they are doing. What does the Minister propose to do to protect the 3,638 individuals who have their cases before the courts knocked back every so often and are in fear of losing their family homes? What does he propose to do to protect the 98,000 families who are in mortgage arrears?

I thank the Deputy for raising this issue. I fully agree that the position was little short of a disaster. The Government of the day decided that the sole engine of growth in the economy would be construction and development. It incentivised construction activity through an assortment of tax breaks. People paid too much for buy-to-let properties and domestic homes. There was no connection between the real economy and the amount of money paid for houses and people got into dreadful difficulty. This was not the fault of purchasers. If a couple with two children living in an apartment need a house, circumstances force them into paying the going rate. Nobody ever suggested this problem would be solved quickly. However, 120,000 mortgages have been restructured and 86% of the people involved are complying with the terms of the restructuring arrangements. We move on.

During a debate on this issue some months ago - I believe it was before the summer recess - Deputies predicted that thousands of evictions would take place. They have not materialised, although many cases are before the courts and subject to continuing adjournment. In that regard, the Minister for Justice and Equality is signing the order to give effect to the provisions of the Personal Insolvency (Amendment) Act 2015.

The representatives of MABS are attending in the courts. MABS is advising people who are before the courts to avail of the new insolvency arrangements and to come to an agreement through insolvency law. That is the latest development. The Minister will have it in place within the week.

There have been thousands of evictions. As I said to the Minister, a total of 1,088 orders were granted in the first nine months of this year, and the number is going to increase. Let us be clear about it: this figure is going to increase before the end of the year.

The Minister is probably the only person in the House who believes that voluntary surrenders are indeed voluntary. Voluntary surrender amounts to the banks saying to mortgage holders that they should sign up and hand over the house or else the bank will take them to court, take the houses from them anyway and they will have other bills on top of everything else in future. That is what voluntary surrender is about. There is no question of giving up the family home being the best option for families. Thousands of people are losing family homes and the number is increasing dramatically. There has been a 400% increase in the past four years.

The Minister's analysis in terms of how we got here is grand. The question is what we are going to do now for these families. For example, in June 2012, the Minister introduced the approved housing body mortgage-to-rent scheme, a scheme that was supposed to solve many of the problems. Since then, only 119 households have availed of the scheme. That amounts to a little over 0.1% of all families in mortgage arrears at the moment.

These issues can be addressed. The Joint Committee on Finance, Public Expenditure and Reform produced a report in June 2014 with numerous recommendations. How many of these recommendations has the Minister introduced? I welcome the fact that the Government will reduce the bankruptcy term from three years to one year. However, we have taken the Government kicking, dragging and screaming to the reality that this needs to be done. Again, it will be done before the end of the year. There is no urgency to deal with these families in severe mortgage difficulty who are looking for the Government to assist them. The Government continues to assist only the banks in this regard.

Everyone agrees this is a very difficult problem. It almost looked as if it was intractable at the start of our period in government. However, because we assessed the situation and provided a menu of possible solutions for restructuring mortgages, it has worked pretty well. A total of 120,000 mortgages have been restructured, which is well beyond the halfway point of mortgages in arrears. We can see the progress being made in new structuring month by month. During the past five or six months, we have begun to see an end in sight. Some of the measures have been suggested by Members while others have come from outside advisers. However, the last bloc causing concern in this House was the issue of evictions and repossession orders.

Some Members have met Mr. Brendan Burgess. I read an article by him in the newspaper last week. He wrote of how he had heard there were strange practices among the courts in the midlands and he went to see for himself. It is an interesting article. He said there were four repossession orders but three of them were for houses that had been abandoned. The people had emigrated and there was no track of them. They were not represented in court and they did not appear in court.

What we have done now is provide an alternative. In the next week, there will be a legal alternative to repossession. At the moment, it is informal. Judges do not want to give repossession orders and the banks do not want to press. However, there will now be a route, with the advice of MABS, through the new insolvency arrangements in order that new arrangements can be arrived at, this time, through insolvency law.

Before I call the next question, I wish to clarify a point. Deputy Doherty raised an issue. If the Ceann Comhairle or I rule out questions, it is because they do not comply with Standing Orders. That has to be taken up with another committee of the House.

Corporation Tax Regime

Shane Ross


3. Deputy Shane Ross asked the Minister for Finance the reason for the spike in corporation tax receipts and the over-performance of €800 million from this source of revenue; if the increase comes from the multinational sector; if he will provide a breakdown of the increase into one-off factors, early payments and delayed rebates and repayments; the timing factors that were involved; the proportion of the increase that was due to improved trading factors; if a single multinational re-booking profits to its Irish division was a significant factor in the unexpected rise; and if he will make a statement on the matter. [40399/15]

I want to raise the issue of the surge in corporate tax returns at the end of October. The Minister will be aware that the income tax and VAT returns were a little below expectations but the corporate tax returns were far above. Can we have an explanation from the Minister for the over-performance of corporate tax? Can the Minister tell us whether this comes from the multinational sector or whether it is the result of one-off returns or trading activity?

The question referred specifically to performance in the month of October. Corporation tax receipts finished the month €806 million ahead of target. A negative amount of €3 million had been profiled in respect of corporation tax receipts in October 2015 because the Revenue Commissioners had forecast repayments of approximately €200 million that would have offset the forecasted level of collection. However, these repayments, which had been identified to the Revenue Commissioners when the monthly profiles were being prepared, did not materialise as expected. This accounts for more than €200 million of the strong over-performance recorded in October. In addition there were also unexpected payments amounting to €350 million from a number of large companies due to better trading conditions while a number of payments totalling €200 million that had been expected in November and December were received in October.

In the year to date, performance in corporation tax receipts has been unexpectedly strong. At the end of October, cumulative receipts amounted to €2 billion or a little under 75% higher than expected and up to €1.8 billion or over 60% year-on-year. I am advised by the Revenue Commissioners that the over-performance is a result of a combination of reasons. For example, approximately half of the €2 billion surplus against profile is attributable to a small number of large multinational companies. The companies involved have advised the Revenue Commissioners that the strong performance in 2015 is primarily associated with improved trading conditions. There are also some positive currency effects but these are not substantial in overall terms. In addition, there are also timing factors. For example, as I have already stated, a number of payments profiled for November and December were received early and a number of large repayments that were scheduled for October are still outstanding. In addition, there were a number of one-off payments amounting to €170 million. As the Deputy may be aware, approximately 80% of corporation tax receipts are received from the multinational sector, with the top ten tax paying groups accounting for more than one third of total corporation tax receipts.

I thank the Minister for his reply. I am a little puzzled by some of the balance. I gather €550 million was explained. A large amount of this was described as the result of better trading conditions. Does that include a single payment from a multinational that has adjusted it profits somewhat dramatically in recent times? What I am getting at is the fact that if multinationals are adjusting their profits and paying far more than expected to the Exchequer, then we are becoming dependent on the whim of multinationals and the creation of their profits. We know already that these are movable feasts. Will the Minister indicate whether there is a multinational here which has changed its mind, adjusted its profits and, therefore, contributed far more than expected to the Exchequer this year?

I cannot get information about particular taxpayers or particular corporations. I have no evidence or briefing to suggest that this comes largely from one source. This is very broad based. I will set out for Deputy Ross the part of my reply that I did not get to. While corporation tax receipts are concentrated in the multinational sector, it should be noted that the improvement is relatively broad based. In this regard, I am advised by the Revenue Commissioners that there has been an increase of more than 20% in the number of companies paying between €100,000 and €5 million up to the end of October this year, as against same period last year. This is reflected in the receipts, which were also up by more than 20% in this category. It is broadly based. It is for trading purposes. Approximately 50 multinationals are in contact over the telephone on a regular basis with the Revenue Commissioners. The group is small. The Revenue can see what is going on. Those involved say they are all trading stronger. That may be due to the decline in the value of the euro. They are trading strongly this year, are making extra profits and they are paying tax on their extra profits.

There may be some element of intellectual property being brought ashore. Again, I cannot identify that but that was one of the purposes of the amendments I moved when we discontinued the practice of residency that facilitated the double Irish arrangement.

I thank the Minister. He has opened the door a bit further, for which I am grateful. The evidence is clear that the multinationals are the main contributors to the extraordinary spike in corporate tax. The Minister should be worried about the effect of the contribution of multinationals which is making such a significant and material difference to the returns to the Exchequer. I am interested in hearing his view. I wonder is he worried that multinationals may make an enormous and artificial difference to the returns coming to the Exchequer because of their extraordinary ways of creating, manoeuvring and manipulating their profits. The Minister referred to it when he talked about intellectual property offshore. They can have a disproportionate effect on the returns of the Exchequer and the deficit. Does the Minister regard this as a significant development and one he should tackle in a particularly material way?

I have read commentary from fairly able people who argue the case as Deputy Ross has argued it. However, when I raise it with the Revenue Commissioners, I am told those theories are not correct. They tell me that the booming economy and the declining exchange rate has brought about a situation where all companies, multinational and indigenous, are trading very profitably. As a result of their profitable trading, they have more profit and pay more tax. The most serious question from my point of view is whether this is a windfall or something that can go into the base for subsequent years. The Revenue Commissioners assure me that this is not windfall and that it can be put into the base for subsequent years because this is the new situation. While that is the advice, we put in a very low percentage increase for corporation tax next year over this year's base when we were constructing the 2016 budget. It is something like 6% or 7%, which is not much more than the growth rate. We need to be prudent about this. However, the Deputy should not be surprised if next year corporation tax again exceeds the estimate for the 2016 budget because we are putting in very prudent figures.

I rely on Revenue to tell me about taxes and to predict tax flows. Revenue is predicting that these tax flows are not windfall and that they will continue into next year and subsequent years in similar trading conditions.

Banking Operations

Michael McGrath


4. Deputy Michael McGrath asked the Minister for Finance his views on restrictions being placed on bank customers in relation to branch cash lodgements and withdrawals; if the Consumer Protection Code will be reviewed in relation to provision of services in branches; and if he will make a statement on the matter. [40510/15]

I raise the matter of the changes to in-branch services announced by Bank of Ireland earlier this month, in particular the minimum withdrawal of €700 and the minimum lodgement over the counter of €3,000. The Minister made a statement at the time that he felt the changes were surprising and unnecessary and Bank of Ireland did something of a U-turn. However, the exact position needs to be clarified. Bank of Ireland issued a statement that it wished to confirm that vulnerable customers together with those elderly customers who are not comfortable using self-service channels or other technology solutions will be assisted by branch staff to use the available in-branch services. Can the Minister clarify his understanding of what that means and the assurance he has been given? Will over-the-counter services be retained at existing levels?

As the Deputy is aware, I have no statutory role in relation to decisions by financial institutions to alter or amend the range of services provided by regulated entities including in-branch cash lodgements and withdrawals. These are ultimately commercial decisions for the management team and board of each lending institution having due regard to their customers. Notwithstanding this, I have expressed my dissatisfaction in relation to the changes that Bank of Ireland recently announced. I made it clear that I considered these changes surprising and unnecessary. Following this statement, Bank of Ireland has given a commitment that vulnerable customers together with those elderly customers who are not comfortable using self-service channels or other technology solutions will be assisted by branch staff to use the available in-branch services. I expect the bank to honour this commitment fully and work with its customers to ensure that the impact of the changes is minimised.

The Consumer Protection Code was originally introduced in 2006. The purpose of the code is to strengthen protection for consumers by introducing clear rules on the conduct of business for all regulated entities in order to increase the standards of services to consumers. The current version of the code was published in 2012 and contains requirements to protect consumers when changes to services are being made. Provision 3.10 of the code requires at least one month's notice to be given to consumers in such instances. The Central Bank has informed me that one of its key focuses is to ensure that consumers are provided with adequate notice of any changes in service to give them sufficient time to make alternative arrangements. Banks must also provide vulnerable customers with the necessary assistance to deal with service changes. The Central Bank has informed me that it continues to monitor compliance with the code in the context of changing services in the banking sector.

Consumers who are not happy with the manner in which services are provided by their current financial institution may wish to consider switching to another institution. The Competition and Consumer Protection Commission website,, provides a comparison tool to compare various financial products.

I thank the Minister for his reply. To its credit, Bank of Ireland has maintained its branch network nationally. However, if changes like this take hold, the role of the branch will diminish over time. All that will be left in branches will be back-office staff and the role of the branch in rural and local communities will come increasingly under question. I am still not clear as to what the policy of Bank of Ireland is on withdrawals of less than €700 and lodgements of less than €3,000 over the counter. Will a member of staff be available to help a vulnerable or elderly person to use the machine in the branch or will the over-the-counter services be available as normal? Many people prefer to deal with a person rather than a machine and one must question the direction of banking, the model we want to see and the level of customer service we are promoting. It is fine to direct people to ATMs but half of the time, they are out of service. Many of them do not dispense €10 notes. Almost all the time one gets a €50 note if one has that much money in one's account. At minimum, one can withdraw €20. It is not consumer friendly and the Central Bank needs to look at it.

Can the Minister clarify his understanding of the position if an elderly person goes into a branch of Bank of Ireland next month and seeks to withdraw €100? Will that be facilitated?

I have no role in directing the day-to-day activities of Bank of Ireland or any other bank. It is making arrangements it announced in a very customer unfriendly way. I said I thought it was unnecessary and an example of poor customer relations. It is also true to say, however, that the industry is changing. We are moving towards a cashless society. Sweden has almost gone fully cashless already. We are moving towards a society which is changing in the way it pays its bills and handles cash. The amounts of cash being handled are changing also. As change takes place, elderly and vulnerable people must be looked after by bank staff.

There is a code of conduct on bank customer relations which dates from 2006 and the Central Bank is the authority monitoring its implementation. It is actively pursuing these issues with Bank of Ireland and others and we have assurances that Bank of Ireland will look after elderly and vulnerable customers. I do not know if that means the girl on the floor will go inside the counter and give out money to an elderly person or whether she will go over to a machine and take the money from there. It is not for me to go in and monitor what is happening on the floor of the bank. Services have to be provided in a way that is helpful and protective of the elderly and vulnerable and they must be happy with their service. The Central Bank will monitor that.

I thank the Minister for his reply. I have written directly to the Central Bank on the issue and I await a reply from Mr. Bernard Sheridan, the consumer director. I have raised these concerns directly with him because it is principally a matter for the Central Bank. However, we are far from being a cashless society. There are still State services that one must pay for with cash.

The reality is that these changes raise serious security concerns. If they are fully implemented, any undesirable person who observes an elderly person getting cash in a bank branch will know that he or she is coming out the door with at least €700. Such a ridiculous situation would put people at unnecessary risk, which would not be fair or acceptable. I welcomed the statement made by the Minister at the time. There has been somewhat of a row-back by Bank of Ireland, but the exact position is not clear. I appreciate that the Minister is not responsible for running the banks and that this is an issue for the Central Bank which needs to get on top of the issue to ensure customers are being properly supported. These supports might be provided on a temporary basis, notwithstanding the code, but if the policy which requires a minimum withdrawal of €700 remains in place, it will become the norm over a relatively short period of time. That is the concern.

It is fair to point out that Bank of Ireland is a private bank that is quoted on the Stock Exchange. The State has a 14% stake in the bank; therefore, it does not have a controlling interest in it. When the bank acted as it did, I issued a statement indicating that what it had done was "surprising and unnecessary". I am glad that the Deputy has written to the Governor of the Central Bank, or to the Central Bank authorities.

In general terms, I support what the Deputy is doing.

Mortgage Interest Rates

Shane Ross


5. Deputy Shane Ross asked the Minister for Finance to set out the progress he has made in his efforts to force Bank of Ireland to reduce its variable rate mortgages; to state the banks that have reduced variable rates; if Bank of Ireland, in particular, has refused to reduce its variable rates; if, as a shareholder in the Bank of Ireland, he will be able to persuade it to bring back its variable rates to competitive levels; and if he will make a statement on the matter. [40400/15]

The item referred to by Deputy Michael McGrath is not the only example of the Bank of Ireland going walkabout. I realise that the Minister has a 14% share in the bank, as he said, but I wonder what has happened about variable rate mortgages. I think it was as long ago as the spring when we first heard that the Minister was meeting the heads of the banks about the absolutely exorbitant variable rates they were imposing. There has been some movement by AIB and perhaps one or two other banks, but it appears that Bank of Ireland has not moved at all. I would like the Minister to clarify where we stand and where he stands on the matter.

I remind the Deputy of the steps I have taken to ensure the banks provide options for mortgage holders to reduce their repayments. Last May I met the six main mortgage lenders and outlined my view that the standard variable rate being charged to customers was too high. The banks agreed to review their rates and products and, by the beginning of July, to have simple options in place to reduce monthly mortgage payments for standard variable rate customers. In September I concluded a series of follow-up meetings with the banks, most of which have put options in place to allow borrowers to reduce their repayments. As the Deputy knows, Bank of Ireland is a privately owned company in which the State maintains a minority shareholding. He will also be aware that in my role as Minister for Finance I have no direct function in the relationship between the banks and their customers. I have no statutory function in the commercial decisions made by individual institutions at any particular time, including the setting of product interest rates. Such decisions are taken by the board and management of the relevant institution. A relationship framework has been specified that defines the nature of the relationship between the Minister for Finance and the bank. This was published on 30 March 2012 and can be found on the website of the Department of Finance. It is up to the individual banks to advertise their rates and products. I am sure the Deputy is aware that some banks have focused on fixed rate offerings or rates based on loan-to-value, while others have reduced their variable rates. I asked the banks to provide options which borrowers could use to reduce their monthly repayments. I believe options have been put in place. Bank of Ireland, for example, has chosen to focus on its fixed rate offerings which are available to standard variable rate customers. I understand Bank of Ireland customers can now avail of a fixed rate of 3.6%, which is substantially lower than its current standard variable rate. The bank also offers other options, including a ten-year fixed product which offers borrowers security on their repayments.

It seems that the Minister's reply means that Bank of Ireland has done nothing whatsoever, or very little, about its standard variable rate. Although the Minister has been able to influence the State-owned banks, I suggest his relationship with Bank of Ireland is that of a junior partner. It is all very well for him to clothe it in a certain type of language by saying he has no day-to-day influence over the running or operation of the Bank of Ireland. I accept that he cannot intervene in the running of Bank of Ireland in a meaningful way, but it appears that when an effort was made to persuade it to reduce its standard variable rate, the attitude it took was completely different from that taken by AIB. The Minister referred obliquely to AIB's decision to reduce its rate. Bank of Ireland decided to eyeball him by doing nothing. It offered fixed rate options, but it left its variable rate very close to the exorbitantly high rate at which it was. Does this mean that the bank, in which the Minister has a 14% shareholding, is operating on a completely different basis on these matters from AIB, in which the Minister has a shareholding of approximately 98%? If these two large bodies which constitute a duopoly are operating on different terms and have different relationships with the Government, it is a matter of some concern.

As an opening position, I accepted the argument made in this House and elsewhere that the standard variable rates being charged by banks and mortgage lenders in Ireland were higher than the market would seem to justify. I met the banks on the basis of that argument and asked them to reduce their standard variable rates or bring forward other products that would show a reduction and give people options. I do not want all of the banks to offer the same options. I want some competition in the market where different options are offered. Bank of Ireland decided that rather than reducing its standard variable rate, it would offer much better value options on fixed rates than it had heretofore. Now it is offering a substantially lower fixed rate of 3.6%. I am surprised at the inertia of customers in responding to the reductions of up to 1% that have been made available to them. I cannot fathom why there seems to be a reluctance to move from variable rates to fixed rates, even within the same bank. Many customers with quite small mortgages are happy to let them roll along. It seems that interest rate reductions of 0.5%, 0.75% or 1% do not represent a sufficient inducement to get them to do the paperwork to switch. The effect of the introduction of these options is interesting.

Standard variable rates and fixed rates are very different creatures with different characteristics. Some borrowers who take out mortgages need variable rates, while some need fixed rates. It is not as if they can just switch from one comparable mortgage to another. In many cases, they do not switch because the fixed rates are not suited to their particular positions. I take it from what the Minister has said that he has given up any hope of getting Bank of Ireland to reduce its standard variable rate. I wonder what influence he has over the bank with his 14% shareholding. He did not answer the important question I asked. Does the fact that he has a 14% shareholding in Bank of Ireland and a shareholding of almost 100% in AIB mean that the banks are operating under different arrangements? Does he have greater influence over the operations of AIB as a result of the difference in the shareholdings? If so, does this affect competition between the two banks?

I do not have a role in the commercial decisions of either bank. The State owns 99.8% of AIB, vested in me, but that does not allow me to intervene in commercial decisions made by the bank. Similarly, the State's 14% stake in Bank of Ireland does not allow me to intervene in its commercial decisions. Obviously, I have a certain moral suasion role. An example of how it works was highlighted in response to the previous question in the name of Deputy Michael McGrath. The new practices Bank of Ireland was proposing to impose on customers in withdrawing money in its branches were totally out of line with our expectations. I issued a very strong statement and the bank reacted immediately. I have that influence. The fixing of interest rates is a matter for individual banks; it is not one for the Cental Bank or me. The answer is to have competition in the system.

That is why I want different products at different prices offered by different banks. I do not want in any circumstance to have the same set of products all priced evenly, as if that was to happen, there would be no competition at all. I would like to attract other lenders to the country on the mortgage side, but that is quite difficult because of the legacy of mortgages in arrears in a country where enforcement involves a long legal process. New banks are, therefore, reluctant to come.