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Mortgage Interest Rates

Dáil Éireann Debate, Wednesday - 18 May 2016

Wednesday, 18 May 2016

Ceisteanna (38, 42, 51)

Catherine Murphy

Ceist:

38. Deputy Catherine Murphy asked the Minister for Finance in view of recent cuts to mortgage interest rates, the steps he intends to take to ensure equitable treatment of customers of majority State owned banks such as a bank (details supplied); how he proposes to address excessive standard variable rates; and if he will make a statement on the matter. [10717/16]

Amharc ar fhreagra

Seán Haughey

Ceist:

42. Deputy Seán Haughey asked the Minister for Finance to ensure that persons on existing variable interest rate mortgages can receive reductions in their interest rates; and if he will make a statement on the matter. [10789/16]

Amharc ar fhreagra

Bernard Durkan

Ceist:

51. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which banking charges and interest rates here are in accord with those applicable throughout the eurozone; and if he will make a statement on the matter. [10845/16]

Amharc ar fhreagra

Freagraí scríofa

I propose to take Questions Nos. 38, 42 and 51 together.

In relation to mortgage interest rates, 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 mortgage 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 these 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.

In relation to other charges, under Section 149 of the Consumer Credit Act, 1995 (as amended), credit institutions must submit a notification to the Central Bank for approval if they wish to introduce any new customer charge or increase any existing customer charge, for certain services. A notification made under Section 149 may include multiple charges and, having considered and robustly challenged the proposed charge(s) under the assessment criteria, the proposed charges may be rejected, approved at lower levels than requested by the credit institution or approved in full. Credit institutions are legally bound to comply with Letters of Direction, which set out the maximum amount the credit institution is allowed to charge for the relevant service. Credit institutions are free to impose any pricing differentials for the service up to the permitted maximum and are free to waive fees at their discretion.

My Department published a report on the review of the regulation of bank fees and charges in December 2013. This contains a detailed description of the process by which the Central Bank makes decisions on whether or not to approve proposed charges. It is available on my Department's website at www.finance.gov.ie. Among the key findings of the review was that while fee and commission income has become a more important source of income to the banks in recent years, net fee and commission income in Irish banks was well below the average of their European peers.

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