Dáil Éireann Debate, Wednesday - 15 November 2023
57. Deputy Michael Ring asked the Minister for Finance if anything will be done to control interest rates charged by financial institutions (details supplied); and if he will make a statement on the matter. [50193/23]
Amharc ar fhreagraThe formulation and implementation of monetary policy is an independent matter for the European Central Bank (ECB). The level of official interest rates influences the overall level of interest rates throughout the economy but other factors, such as the cost of funds, capital requirements, loan default risk, operational costs, expected return and competition, will also have a bearing on the level of retail interest rates in an economy. These are commercial matters for individual firms and, therefore, the setting of retail lending rates by individual firms is a business matter for those firms and I have no function or role in such decision making matters by financial institutions.
Nevertheless, the Government recognises the difficulties that increasing interest rates, and the rise in the cost of living more generally, is causing for some mortgage borrowers. From a regulatory perspective the Central Bank has put in place a range of measures in order to protect consumers. This framework seeks to ensure that regulated entities are transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle.
Specifically, in relation to variable rate mortgage holders, the Central Bank's Consumer Protection Code requires mortgage creditors to explain to borrowers how their non-tracker variable interest rates have been set and to clearly identify the factors which may result in changes to variable interest rates.
The Central Bank also increased the level of information lenders are required to provide their customers including where there is a possibility for the borrower to move to a lower ‘loan to value’ interest rate band. Lenders must also signpost the borrower to the Competition and Consumer Protection Commission's mortgage switching tool.
The Central Bank is also engaging with firms on the operation of specific aspects of the consumer protection framework. Regulated firms must enhance the supports available to borrowers who are in or facing arrears. Regulated firms must have sufficient operational capacity in place to manage applications by borrowers to switch their mortgage or mortgage provider. Increases in mortgage interest rates must be in line with mortgage terms and conditions, firms’ published variable rate policy statements and the regulatory framework for which the Central Bank is responsible.
In this regard, the Central Bank has indicated that it has not seen interest rate increases that are contrary to customers’ terms and conditions and that non-lending firms are broadly increasing rates for variable rate loans as ECB monetary policy and wholesale rates have trended higher.
Building on the work of the Central Bank, I recently met the CEOs of banks and other mortgage entities and indicated that they should support their customers at this time of increases in the cost of living and rising interest rates. In response, on 6 September last, the industry then outlined a number of further measures to assist their customers experiencing difficulty and provided further clarity on eligibility criteria for switching mortgages such as:
• a second phase of a ‘Dealing With Debt’ campaign to highlight new and existing supports for concerned mortgage customers;
• mortgage servicing firms and MABS to collaborate on an expansion of streamlined customer engagement framework; and
• the provision of initial eligibility criteria by the main lenders to provide clear guidelines for home mortgage customers of credit servicing firms who are seeking to switch their mortgage.
In addition, as the Deputy is aware, Budget 2024 provided for a one-year mortgage interest tax relief scheme for homeowners with an outstanding mortgage balance on their principal private residence of between €80,000 and €500,000 on 31 December 2022. Qualifying homeowners will be eligible for mortgage interest tax relief in respect of the increased interest paid on that loan between the calendar year 2022 compared to the calendar year 2023 at the standard rate of income tax, capped at €1,250 per property.
On the issue of controlling retail interest rates, the Central Bank has indicated significant concerns at the prospect of policy interventions that seek to administratively regulate the setting of retail interest rates by financial institutions. This is grounded on the appropriate responsibility for the management of risk as a core function of the financial system, the need to ensure a competitive market for consumers, the risk of interfering with the transmission of the ECB's monetary policy transmission mechanism and the importance of fair price formation in an open market.
The Retail Banking Review report, concluded in 2022, did not recommend action that would seek to cap or otherwise administratively manage the price of mortgage credit. I believe that measures to cap or regulate retail interest rates has the potential for creating unintended consequences for current and future mortgage holders and that the consumer protection framework and supports available are the most appropriate means to support borrowers who are experiencing difficulties due to increased interest rates.
