Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to contribute to the debate on this Sinn Féin Private Members' Bill, which was introduced by Deputy Pearse Doherty. While we have some reservations about some of the details, the Fianna Fáil Party will support the legislation, as Second Stage is about broad principles, and I support the broad principle of giving the Central Bank the power to intervene in respect of the mortgage interest rates being charged by banks.

We need to get real in this debate. Approximately 300,000 standard variable rate mortgage account holders are being ripped off. Paying way over the odds makes a dramatic difference to a monthly mortgage repayment and can add hundreds of euro each month in interest above and beyond the rates that are charged elsewhere in Europe. Over the lifetime of a 20- or 25- year mortgage, Irish mortgage holders on variable interest rates are paying tens of thousands of euro more in interest than mortgage holders elsewhere in the European Union. I have yet to hear a logical explanation for the reason mortgage interest rates charged in Ireland are double the average rate in the eurozone.

I am pleased the campaign for fairness for standard variable rate mortgage customers is gaining considerable momentum. Since Fianna Fáil highlighted this issue during the debate on a Private Members' motion at the end of March, some progress has been made. Our motion resulted in a meeting being arranged between the Minister for Finance and the Governor of the Central Bank to discuss the issue of standard variable mortgage rates. We subsequently secured, for the first time, an admission from the Minister that the rates being charged by the banks are too high. The Central Bank has also produced a report on variable rate pricing, and while we can agree or disagree with it, at least it forms the basis of a discussion. The Minister also held six meetings with representatives of the various banks. It is now time for action.

As of yet, not one of the banks has reduced its standard variable rate on account of a meeting it has held with the Minister. The Minister of State, Deputy Kathleen Lynch, referred to the reduction in the standard variable mortgage rate charged by Allied Irish Banks. This reduction was announced by AIB's chief executive officer, Mr. David Duffy, at a meeting of the Joint Committee on Finance, Public Expenditure and Reform several weeks before the bank's representatives met the Minister. Bank of Ireland has since announced a reduction in fixed mortgage rates. The purpose of the meetings between the Minister and representatives of the banks was to secure reductions in variable rates. The statement issued by the Minister following these meetings was carefully worded. He indicated, for example, that simple options to reduce monthly mortgage payments for standard variable rate customers would be available by the beginning of July. As such, he can claim that the reduction in the fixed rate ticks this box and fulfils that promise.

The Minister's statement continued: "Some of the potential products include lower standard variable rates for existing and new customers, competitive fixed rate products and lower variable rates taking account of loan to value for new and existing customers." In tandem with this official statement, we heard a great deal of spin from unnamed Government sources who spoke to the media and indicated that an initial 0.25% cut in the interest rate would be followed by a second 0.25% reduction in a few months. We also heard that the Government fully expected standard variable rates to fall by 0.75% within the next year. Thus far, however, not one bank has reduced its variable rate on account of a meeting with the Minister.

The Minister should not accept a reduction in the fixed rate as a substitute for reducing the standard variable rate. The cost of funds for banks has declined dramatically recently as a result of lower funding costs from the European Central Bank and reduced costs on the wholesale markets, and because the banks pay little or no interest to savers and depositors. The variable rate has not fallen in line with reductions in the costs of funds. Instead, the net interest margin has increased dramatically. I accept that banks must be profitable, and the pillar banks are reasonably profitable again. However, if the cost of funds were to increase for the banks, they would not need to be asked twice to increase their variable interest rates. On the contrary, their variable rates would be increased almost immediately.

The House must speak with one voice on this issue, because the rates mortgage holders are being charged on standard variable rate loans are simply not acceptable. Regardless of whether the Central Bank wants to acquire the power to intervene where there is a clear market failure, it should be given such a power.

The House is tonight debating a Sinn Féin Bill and will soon debate a Fianna Fáil Party Bill on this issue. My party will maintain pressure on the Government. While we must wait until 1 July before we can measure the response from the banks to their meetings with the Minister. Thus far, Ulster Bank, KBC and ACC have not commented, Permanent TSB has given a strong hint that it will not reduce its rate, AIB announced a cut in its rate before its meeting with the Minister, and Bank of Ireland has gone through the back door by reducing the fixed rate.

Fixed rates do not suit everyone, and many people do not want to move to a fixed rate. Bank of Ireland is only offering a fixed rate for existing customers who sign up to a minimum two-year term. If customers lock into a specific fixed rate and the variable rate subsequently falls significantly below the fixed rate, they will lose out a second time. For this reason, the campaign sets out to reduce the standard variable mortgage rates the banks are charging. The Minister and Government should not settle for anything else, and my party certainly will not settle for anything less.

This Bill, or similar legislation, is also required to address the sale to private equity funds of approximately 20,000 mortgages from under the feet of the mortgage holders. These so-called vulture funds are outside the control of the Department and the Central Bank. We are still awaiting the passage of consumer protection legislation covering this area, but even that Bill will not deal with circumstances in which the vulture funds decide to increase their rates. If they were to charge rates of 6%, 7% or 8%, the Minister and Central Bank could do damn all about it. This is not acceptable, because the mortgage holders in question are exposed to a real and unacceptable risk.

I welcome the Bill, and my party will support it on Second Stage. We will wait until 1 July to ascertain what has been the reaction of the banks to the Minister's statements. Thus far, it has been deeply disappointing, as there is no evidence that they have taken on board the spirit of the message the House has consistently sent in respect of the exorbitant standard variable mortgage rates they are charging.

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