Professor Patrick Honohan:

Does the Deputy mean spreads? It is my typical vagueness on such a matter. I do not want to be pinned down on a timeframe. At the beginning of May, AIB lowered the rate relative to when all this conversation was ongoing. There is some competitive pressure, and in the coming quarters we could see that kind of behaviour. One of the great inhibitors for the banks in lowering the standard variable rate is the fact that they look around and see inertia on the part of the borrowers who could switch. The Central Bank did a calculation and will probably publish something on it later on. We looked to see who could benefit from switching, given that there is a spread of rates. There is lots of information. Are there people who could benefit from moving to a lower-cost provider, bearing in mind that switching involves some costs, such as legal costs? Our people found that as many as 15,000 people could benefit a lot from the current rate. I am not saying that the current rates are even the lowest wherever they are for different circumstances and different loan-to-value situations. They are not particularly low, but even with the spreads that are there, there might be 15,000 people who, if they had the time to do the sums, could save a four-figure sum in a year.

I am not blaming anybody. We all know that we all suffer from inertia and are not sure what is going to happen. It is the same with gas and electricity. If people were more savvy, banks would be more on their toes and we might see the rates go down, so I would encourage that. I am not in the blame game. I am encouraging more competition - competition from borrowers as well as competition between lenders. The lenders do not want to lower the SVR rate if they do not see that they will get much new business from it, since they will have to bring down the rate on all of their back book; because it is, after all, the standard variable rate. They have this huge back book, and they say: "Will we lower the SVR rate? We will get more borrowers. Yes, that will be good. But on the other hand we will lose on the existing stock of loans." From a profitability perspective, the calculation is not as favourable as it would be in other circumstances.