Brian Cowen (Laois-Offaly, Fianna Fail)

Of course one keeps a close eye on these matters, as one must and should. Interest rate policy, as a result of our euro membership, is a matter for the ECB in the first instance. Ireland is represented on the ECB by the Governor of the Central Bank. Mr. Trichet, President of the European Central Bank, when addressing the European Parliament's economic and monetary affairs committee — his comments were not confined to Ireland but related to a number of European countries — said that the housing market in a number of European countries has been considerably buoyant but monetary policy decisions are taken with regard to the euro area as a whole and cannot be taken with regard to individual conditions in specific countries.

The Central Bank has been consistently pointing to the requirement for prudence on the part of both borrowers and lenders in the housing market here. The prime emphasis in its comments is that people should focus on affordability both in the present and in situations that might not be as benign as in the recent past. This has been done through its economic bulletins and its financial stability reports. In addition, it continues to have ongoing dialogue with the banks and conducts stress testing exercises. The financial regulator also recently increased the risk weighting on all new mortgages with a loan to value ratio of more than 80% and its consumer division has been active in informing consumers of the various options and factors they must consider when borrowing.

Prudent and responsible fiscal policy clearly also has an important role in contributing to financial stability and balanced economic performance overall. One of the issues when preparing the Estimates was ensuring that an increase in spending would not add to inflationary pressures already in the system, due to the fact that we are reaching our potential growth in tight labour market conditions.

With the implementation of the overall legislative framework, private sector credit growth and debt levels are, in the first instance, matters for the Central Bank and the Financial Services Authority of Ireland. That follows from the Central Bank's role as part of the European system of central banks and its functions as a financial regulator with regard to the prudential supervision of financial institutions and the protection of consumers of those firms.

The recent growth in credit requires us to recognise that while we have reduced public sector credit, there has been a growth in credit in the private sector. People need to be mindful of that issue. The financial stability report to which Question No. 57 refers indicates that while estimated mortgage repayments as a percentage of disposable income have varied over the past 16 years, the current mortgage repayment level on a national basis is less than the 35% level which obtained during the early 1990s. Irish house buyers benefit from a range of supporting factors, including healthy income growth, low income tax rates and relatively low interest rates by historic standards.

Affordability is also supported by the strength of the economy, record employment levels and relatively high savings rates. Recent indications of an increase in the private sector debt to income ratio require us to recognise that borrowing has to be taken into account on the basis of all the relevant criteria and we are now entering a slightly higher interest rate regime than was the case 18 months ago.

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