The level of interest rates being charged in Ireland is an important issue for the Government and the charging of excessive rates on mortgages would not be acceptable. It is also important that Ireland has a healthy commercial banking system that is able to provide finance to customers and has an ability to withstand economic and financial market shocks. This means it must be in a position to generate sustainable profits over the long term to absorb credit losses over the credit cycle while still generating capital.
While we can see that Irish mortgage rates are higher relative to the eurozone average interest rate, there are a number of factors that impact on the level of interest rates. In Ireland, it is unfortunate that the mis-pricing of risks in historical lending continues to be a significant burden, as evidenced by the continued high level of non-performing loans, the prevalence of very low yielding tracker mortgages, and low net interest margins. There is also the issue of reduced competition with fewer banks in the system compared to a decade ago and the largest operators have a significant share of the mortgage market.
The residential mortgage market comprises, amongst other things, fixed interest rate mortgages, loan to value managed variable rate mortgages, trackers and restructured mortgages of various types, etc. Therefore, the residential mortgage market cannot be assessed by only looking at standard variable rate mortgages and any assessment would need to consider the large number of different factors that influence interest rate pricing.
In terms of what I can do as Minister, the European Central Bank sets the monetary policy for the Eurozone as a whole and the Central Bank of Ireland does not have a statutory role in prescribing the rates that mortgage lenders charge on their loans. I too have no statutory function in relation to the commercial decisions made by individual lending institutions, including decisions on the level of interest applicable on mortgage or other financial products offered by banks.
The Central Bank has carried out research, which showed the scope for borrowers to save money by switching mortgages and the Competition and Consumer Protection Commission has launched a mortgage switching tool for consumers that notes the findings of the Central Bank research of cases where borrowers could make savings. I strongly urge consumers to utilise these tools and information to enable them to available of better rates.
I firmly believe that increased competition and making it easier to switch ones mortgage, rather than administrative controls, remain the best way to ensure that retail lending rates are driven down in a sustainable way for the market as a whole but without giving rise to potentially undesirable consequences for the provision of new mortgage lending.