Dáil Éireann Debate, Wednesday - 25 February 2009
126 Deputy Richard Bruton asked the Minister for Finance if he will amend the regulations on fixed interest rates whereby people are being penalised for breaking out of them in order to change to lowering variable rates; and if he will make a statement on the matter. [7803/09]
Amharc ar fhreagraThe Minister has no function in setting interest rates. His function is to provide an appropriate and robust legislative framework for regulation of the financial services sector, with a particular focus on the consumer. The choice of mortgage product ultimately rests with the consumer in light of the terms and conditions that their lending institution offers. The decision of borrowers is influenced by factors such as their personal preferences and their own assessment of the relative merits of fixed and variable rate mortgages.
Generally mortgages are for long periods. To some consumers a fixed interest rate on a mortgage offers peace of mind in that the borrower benefits from certainty regarding the cost of their mortgage, does not need to be concerned with changes in mortgage interest rates and accordingly he or she can budget more confidently.
As the Deputy will be aware, interest rates charged by banks generally vary in line with the base rate fixed by the European Central Bank (ECB) from time to time. Where a bank offers a fixed rate over a certain period it incurs additional costs in obtaining fixed or other funding in respect of the loan over the period. The additional costs will reflect both the market view in relation to future trends in interest rates for the period and the fact that longer term deposits generally attract higher interest rates than short term. In addition, where a consumer changes from a fixed interest rate contract to a variable rate contract before the end of the term for which the interest rate was fixed, there is an associated cost to the lender. In circumstances that lenders were prohibited from passing on this cost to borrowers switching to variable rates, this cost could increase the price and reduce the availability of fixed rate mortgages.
