Dáil Éireann Debate, Thursday - 22 June 2023
80. Deputy Pearse Doherty asked the Minister for Finance his views on the recent increases in interest rates by the ECB; his assessment of their impact on mortgage borrowers; and if he will introduce temporary and targeted mortgage interest relief. [30241/23]
Amharc ar fhreagraThe Minister will be well aware, and hundreds of thousands of people, unfortunately, are well aware, that the European Central Bank has raised its interest rates for the eighth time since July. These sharp hikes in interest rates have led to a significant rise in mortgage costs and a massive income shock for hundreds of thousands of borrowers. Those borrowers are already in the grip of a wider cost-of-living crisis, and the State can and should support them. In that context will the Minister for Finance commit to a temporary targeted mortgage interest relief to support these households without delay?
I thank the Deputy for his question.
The formulation and implementation of monetary policy is an independent matter for the European Central Bank, ECB. As the Deputy will be aware, the ECB has increased official interest rates over recent months as it attempts to combat inflation. The latest increase, which was announced last week, brings the main ECB lending rate to 4%. Any decision to change official interest rates, and the timing of any such decision, is solely a matter for the ECB. Following last week's monetary policy meeting, the ECB reiterated that its monetary policy decisions will depend on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
The Central Bank is analysing developments in credit matters on an ongoing basis to understand how rising interest rates are affecting the economy and the resilience of the household sector as a whole and, within that, to identify groups of borrowers who may be more vulnerable to distress. The Central Bank has recently published a number of reports, studies and papers on these matters which can be found on its website.
In general, the Central Bank has noted that the ratio of Irish households' mortgage interest payments to income has fallen substantially since its peak in 2008 but that it is also the case that the impact of interest rate changes varies widely across households. Due to high levels of mortgage fixation, up to half of all mortgage holders at retail banks are likely to have experienced no increase in repayments by the end of 2023 and about 40% will be insulated from higher interest rates by the end of 2024. On the other hand, tracker mortgage customers and certain other borrowers are among the most exposed to repayment shocks. This most exposed group also tends to have substantially larger mortgage balances than less exposed customers.
On the question as to what support we can give as a Government in terms of fiscal intervention, and as I have said before, the most appropriate time for that decision, in my view, is when we consider the available resources we have in the lead-up to budget day.
That is fine for the Minister for Finance to say because there are people in this House who may be able to withstand the types of shocks we have seen. However, we on the finance committee had two people before us yesterday. Both had their mortgages sold on from Permanent TSB to the vulture funds, which my legislation would have stopped, but Fianna Fáil and Fine Gael frustrated that. Those people are now in the grip of the vulture funds. They are now paying 7.25% and 7.5% and they know that their interest rates are going to go up later, when they get the letters through the doors in the coming weeks as a result of the recent ECB interest rate hikes, and they are likely to go up further. What that means for one individual, a bus driver here in the city of Dublin, is that his mortgage repayments have gone up by €8,400 per annum - before this interest rate hike happens and before the scheduled other ones that have been flagged by the ECB happen. That is the reality. They do not have until October when the Minister might decide to do something that might not come into effect until January of next year - if he does it at all. The reality is that these families need support now.
The Minister mentioned the Central Bank. The Central Bank said that 20% of all households with mortgages are facing an increase of €4,800 in servicing their mortgages as a result of these increases, and that was before the last two increases took effect. The Minister needs to get his head out of the sand. The Government needs to get its head out of the sand. This is not normal. People need support now.
I welcome the work of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on this issue. I have been very clear as to my expectations and what I want to see from the financial sector, and that is that customers who are making genuine efforts to repay their mortgages should not be allowed to fall into arrears by virtue of changes in interest rates brought about by monetary policy tightening by the ECB. We need to see the statutory protections and the code of conduct that is there being fully applied, which requires, as the Deputy will know, that all cases be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his or her mortgage obligations. There is a collective responsibility here shared not only by the Central Bank, the banks and all the non-bank lenders, including credit servicers, but also by the actual loan owners and the funders and the beneficial owners of those loans, who should be engaging with the committee. We will consider all of this in the lead-up to the budget and we will be putting more money back in people's pockets in the budget, but the precise way in which we decide to do that requires careful consideration.
One of the witnesses who came before the finance committee made it very clear that she does not want to fall into arrears. Actually, both witnesses have not missed a payment, have never been in arrears and are meeting all their payments. The reality, however, is that when interest rates increase to the level they have increased to as a result of those loans being sold to the vulture funds, and when families are asked to find an extra €8,500 to keep a roof over their heads, it was explained in great detail - the Minister should not have to be told this by the victims of this scandal - that it means children have to go without other things, like school trips, family holidays and being able to go to a wedding, that put pressure on the finances of the family.
The Central Bank has told the Minister that, on average, there was a €5,000 increase before the last two hikes for 20% of customers and a €2,000 increase for half of all mortgage holders, and it is going to get worse, yet the Minister says he will consider it. Given the reality he knows, why does he not at least say he will do something to support these people? Can he even say that now, even if it is delayed as far as October, which would be scandalous? He should be intervening now, and there is no reason he cannot. We have seen interventions in a range of other things, whether hospitality, petrol and diesel or energy costs for businesses. It can happen outside the budgetary cycle. The Minister has decided to abandon these households and these homeowners, and it is absolutely disgraceful in light of these rates.
The commitment I can give as Minister is that we will help households in the budget, but those decisions fall to be made as part of the budgetary process. The Deputy gives stark examples, which are real examples, of people whose mortgage payments might have increased by €400, €600 or maybe €800 a month. His proposal is to give them €4 a day, maximum, to help them with their mortgages.
We need to look at all of this. We need to look at the role of the Money Advice & Budgeting Service, MABS, the role of the insolvency service and what reforms and changes are needed there. We need to look at mortgage to rent, the consumer protection code and the code of conduct on mortgage arrears. There are a whole suite of measures here that have to be examined to see how we can help in practical terms the mortgage holders who are under real pressure, as many are. I acknowledge that. We have managed to bring the level of arrears down significantly over the past ten to 12 years. I do not want to see that progress move into reverse. My key message is that no borrower should be allowed to fall into arrears because of interest rate hikes if he or she is making a genuine effort, and the code needs to be fully applied in that regard. I will be engaging again with the sector - the banks, the non-banks and the Central Bank - on all these issues in the weeks ahead.
