Brian Cowen (Laois-Offaly, Fianna Fail)

As the Deputy will be aware, there is a broad range of factors that determine the effect of changes in interest rates on individual loan repayments. These include, for example, the outstanding loan amount, whether the lending rate is fixed or variable, the length of time over which the increase takes place, the pass-through of interest rate changes to lending rates, the repayment term and the specific nature of the financial product involved. In reviewing the broad impact of projected increases in interest rates on households, account must also be taken of such factors as private sector savings levels as any increase in interest rates will obviously have beneficial effects for savers, as well as the broader macroeconomic climate comprising strong employment and incomes growth and continuing robust performance of the economy overall.

As far as the provision of information by mortgage lenders is concerned, mortgage providers are specifically obliged under the Consumer Credit Act 1995, to inform borrowers of the effect on the amount of their repayment instalments of a one percentage point increase in interest rates in the first year of their mortgages. This is intended to ensure that consumers, when making such a significant borrowing decision, are properly informed regarding the impact that changes in the cost of servicing the loan will have on the household budget over time.

A further strengthening of the regulatory framework will be achieved through the introduction of the financial regulator's proposed consumer protection code. This code will place obligations on regulated entities that provide mortgages to act in their customers' best interests by ensuring that they seek appropriate information about a consumer so that they know and understand their customers' needs. Providers must also ensure that mortgages are suitable to each individual consumer's circumstances. These obligations will be additional to the statutory prior information and warnings required under the Consumer Credit Act 1995.

The financial regulator has also developed a number of specific initiatives to help consumers make informed choices in terms of their financial decisions, including those on mortgages. As the Deputy will be aware, mortgage lending practices are closely supervised by the financial regulator, with appropriate stress testing of borrowers' ability to meet their obligations as the interest rate environment changes.

As far as the level of mortgage interest rates is concerned, it is important to make the point that Ireland's euro area membership, along with the high degree of competition in the Irish mortgage market, fostered by new entrants, has produced a low interest rate environment for Ireland relative to its historical experience. A competitive market benefits consumers through increased choice, lower prices, better service and a wide range of competitively priced products aligned with the personal needs of individual borrowers.

It is a matter for each individual to judge the level of debt that is appropriate to his or her circumstances. While the pattern of mortgage growth and associated debt in the economy is supported by a range of fundamental factors such as growing employment, rising incomes, favourable demographics and low inflation and interest rates, the Central Bank has highlighted the need for borrowers and lenders to take account of the current low level of interest rates and that this situation cannot continue indefinitely. I share the view that borrowers and lenders need to factor into their financial decision-making the prospective impact of potential changes in the future economic and financial environment.

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