Dáil Éireann Debate, Wednesday - 18 May 2016
21. Deputy Pearse Doherty asked the Minister for Finance his views on the expected timeline as to when Irish variable mortgage rates will move in line with the European average, in view of the statement in the programme for Government regarding the Government’s intention to take all necessary action to tackle high variable rates. [10542/16]
Amharc ar fhreagraAs the Deputy is aware, the Programme for Government makes it clear that it is not ethically acceptable for Irish banks to charge excessive interest rates on standard variable rate customers. The Government has committed to take all necessary action to tackle high variable interest rates; including through establishing a new code of conduct for switching mortgage provider, administered by the Central Bank and the development of a new, easy-to-use standardised and dedicated switching form. We will also request the Competition and Consumer Protection Commission to work with the Central Bank to set out the options for the Government in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and improve the degree of competition and consumer protection. These are Year 1 Actions in the programme.
I do accept that variable rates remain above Euro area norms and I think that it clear that there is broad agreement in this House that we would like to see rates reduced. Central Bank research on the influences on standard Variable Mortgage Pricing in Ireland published last year identified three main reasons for higher rates in Ireland. First, the pricing of loans needs to reflect credit risks. In Ireland these risks are elevated due to high levels of non-performing loans and the lengthy and uncertain process around collateral recovery. Second, competition is weak. This is not unrelated to credit risks since high credit risk deters new players from entering the market. Third, bank profitability is still constrained by legacy issues. Profitability is essential to ensure banks build up adequate capital buffers to meet increasing regulatory requirements and to withstand future adverse shocks.
I think that it is fair to say that there have been considerable movements in the mortgage offerings of the Irish banks in the last twelve months since my meetings with the banks. As recently as last week, two banks made additional reductions to their mortgage offerings. There has also been media speculation on the entry of another new mortgage provider into the market and the additional competition should help to put further pressure on the existing banks to reduce their rates. This is a vivid illustration of the effectiveness of the Government's policy, that competition is the best way to put pressure on the banks to reduce rates.
