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

I welcome the opportunity to debate once again the vital issue for family finances, that is, the standard variable mortgage interest rate applying to mortgage products in Ireland. This is an issue that Fianna Fáil has been focusing on for well over a year at this stage and, last year, we dedicated two of our Private Members' slots to advancing the interests of individual mortgage holders and families affected by this issue.

I wish to acknowledge the dedication and expertise brought to the issue by campaign groups, such as The Fair Mortgage Rates Campaign led by Brendan Burgess, and the highlighting of the issue by commentators in the media, such as Charlie Weston of the Irish Independent, and others. We also welcome the support of other Opposition parties and Independent Deputies, who also used parliamentary time in the Thirty-first Dáil to advocate for variable rate mortgage holders.

This collective effort led the previous Government to meet with the banks in May of last year and some rate reductions have been delivered. There has been a strong degree of consensus that the current situation is far from satisfactory. Ministers in the previous Government and a number of the Independent Deputies who are now part of or supporting the new Government have spoken of the need for action on this issue. While we are, I believe, broadly united in this House in our collective determination to achieve fair treatment for standard variable rate mortgage customers, there has been and remains disagreement on how best this can be achieved. There is nothing to fear from this. It is a sign of a healthy, functioning democracy that all aspects of this issue can be fully ventilated on the floor of Dáil Éireann.

As I noted last July, standard variable mortgage interest rates are a huge issue in many household budgets throughout the country. To put it in context, it is worth remembering there are up to 300,000 residential mortgage customers with variable rate mortgages in this country and, collectively, they owe €40 billion. A 0.5% cut in mortgage rates would give an average boost of over €650 per annum to these families while a 1% reduction would help them to the tune of nearly €1,300, so we can see the importance of this issue in financial terms for the households who are affected.

This debate is a significant chance for the Dáil to assert its greater freedom to act collectively in a spirit of co-operation and in the interests of the public. Fianna Fáil is moving this Bill against the backdrop of the terms of the framework agreement we entered in to with Fine Gael, which committed the parties to: "Take all necessary action to tackle high variable interest rates". I also note the terms of the programme for Government, which states:

It is not ethically acceptable for Irish banks to charge excessive interest rates on standard variable rate customers. We will take all necessary action to tackle high variable interest rates. ... We will request the Competition and Consumer Protection Commission to work with the Central Bank to set out the options for the Government in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and improve the degree of competition and consumer protection.

Earlier today, the Minister for Finance, Deputy Noonan, raised potential constitutional difficulties with the Bill, citing the comments of an investment bank, Investec. This is most surprising as, when the legislation was originally debated in July of last year, the Minister and his representative on the Tuesday evening of that debate, the Minister of State, Deputy English, did not raise any such concerns. That debate was on the same Bill we are debating here, and I presume it went to the Attorney General for advice, yet no issues whatsoever around its constitutionality were raised at that stage. It is even more surprising when one considers the terms of the programme for Government, which noted the potential for legislation and regulation in the area of mortgage rates. Last May, the Minister himself held up the possibility of introducing this type of legislation or introducing a penal bank levy if the banks did not reduce mortgage costs. Unfortunately, the conclusion may be drawn by some that the question of constitutionality is an excuse that is reached for when a Government has run out of valid reasons not to support an Opposition Bill.

When this issue came to the fore last year, the initial strategy on the part of the banks was to deny to existence of a problem. Some banks have moved to reduce their standard variable rates, which I welcome. AIB has reduced its standard variable rate on four separate occasions in the past 18 months, and it now has a standard variable rate of 3.4%. I believe this should be extended to EBS and Haven customers, who have been excluded from the most recent cut, at least until now. Weekend media speculation pointed to a possible further cut, which would bring the rate closer to 3%. Let us hope this happens.

These reductions are very welcome. On a further positive note, there are now some signs of competition between banks in the mortgage switcher market. This should be supported by a statutory code of conduct on mortgage switching. I believe the Government and the Central Bank are now minded to implement such a code, which I welcome, given we have been calling for it for some time. It is also positive that Permanent TSB has introduced a new managed variable rate product. I am conscious that Permanent TSB has not yet returned to sustained profitability and any regulatory framework that is put in place has to be carefully balanced between the need for consumers to be protected and the requirement for the banks to be profitable, competitive and viable into the future. Indeed, the legislation we are putting forward today allows for a differentiation between different lenders considering a range of factors, including some of those mentioned.

While progress is being and has been made, in the past year in particular, we believe still more needs to be done. Some banks blatantly continue to offer better deals to new customers than to their existing standard variable rate customers. This should not be acceptable to anyone in this House and it should not be acceptable to the Central Bank, which, after all, has a key role in consumer protection. Customers with high loan-to-value mortgages, those in negative equity, those in arrears, those who have restructured their mortgage or those whose financial situation has taken a turn for the worse often find it impossible to switch in order to avail of the new, better rates. Those rates are not extended to them and they are essentially trapped, an issue which needs to be dealt with.

Standard variable rates north of 4% are still far too common in the Irish market. Those banks that have steadfastly refused to reduce their standard variable rate cannot be allowed to hide behind improved fixed rate offers. In particular, Bank of Ireland has stuck rigidly to a completely unjustifiable variable rate of 4.5%. In a presentation accompanying its year-end results for 2015, the bank's cost of funds is quoted at 0.8%, so it is charging its standard variable rate customers over 5.5 times the bank's own cost of funds, which is an indefensible position. If the Central Bank is not going to vindicate the rights of those mortgage holders, then this House should move to do so.

Fixed rate mortgages are an entirely different product to a standard variable rate mortgage, as I have pointed out on numerous occasions. If a customer locks in to a fixed rate, they will lose out again if the variable rate falls below the fixed rate. They will also lose a lot of flexibility because, while a fixed rate is suitable for many mortgage holders, it may not be for others. In addition, if a new competitor enters the market offering a much lower variable rate, the customer will face substantial penalties if they seek to switch their mortgage.

The position of Danske Bank customers is even more precarious as they are paying a standard variable mortgage rate of 4.95%.

In 2013 Danske Bank announced that it was pulling out of the personal banking market in Ireland. While the majority of its mortgage loans are at tracker rates, a significant number of its variable rate customers pay the highest mainstream lender rate in the Irish market of just under 5%. There was a chink of light for its customers earlier in the year as a result of the Miller case. The original ruling by Mr. Justice Hogan who found that Danske Bank had acted incorrectly in raising its standard variable rate at a time when the ECB was actively cutting its lending rates had given hope to mortgage customers, but it was overturned on appeal. Essentially, the courts have found that the law, as it stands, cannot be invoked by a mortgage customer who believes a bank has hiked the standard variable rate payable to an excessive extent. As I stated, at one stage last year the Minister was of the view that legislation and-or a penal bank levy could be used as sticks to force the banks to reduce their rates. Now he seems to believe competition alone will solve the problem.

While customers are to be encouraged to shop around, the truth is that switching a mortgage from one lender to another can be difficult. Today the Minister said one would need a PhD in mortgage switching to switch from one lender from another. Most people do not have a PhD in mortgage switching and find it very difficult. That is why we need a code of conduct on mortgage switching. In particular, it is of no use to customers of Danske Bank who are in negative equity. The option of switching to a lower cost lender is effectively closed to them and many others. I have been contacted by Danske Bank customers who are at their wits' end in trying to cope with their monthly mortgage repayments. It is of cold comfort to them when they hear the Minister speak about competition reducing rates. There is no realistic prospect of that institution cutting its variable rate, unless it is forced to do so because it is exiting this market. Therefore, moral persuasion will have no influence on it.

The Central Bank is sitting on or considering an application for a licence by The Frank Mortgage to enter the Irish market and extend cheaper mortgages to customers, I believe, at rates of less than 3%. The Central Bank should embrace new entrants, provided they meet the regulatory requirements and swiftly allow them to compete in the Irish market and apply further downward pressure on interest rates.

The situation facing approximately 46,000 mortgage holders whose mortgages are now owned by non-bank lenders must also be highlighted. Many of these mortgages are owned by so-called vulture funds which bought mortgages from the IBRC special liquidators and foreign-owned banks departing the Irish market. If these funds decide tomorrow morning that the mortgage rate should be increased to 6% or 8%, there is nothing customers can do about it. More worryingly, there is nothing the Central Bank can do about it based on its existing statutory powers. This is not tenable and exposes those mortgage holders, in particular, to an unacceptable risk. I would like to address the question of whether the Central Bank actually wants these powers to intervene in the market, as this is something that I imagine will come up regularly in the course of the debate.

Under the terms of the legislation, the Central Bank would be required to carry out an assessment of the state of the mortgage market, taking into account factors such as the banks' cost of funds, reasonable profit expectations, concentration within the market, the ease with which borrowers can switch mortgages between lenders and the extent to which they are switching. Should the Central Bank conclude that there is a market failure, the legislation would empower it with a range of tools to influence the standard variable rates charged in the market.

It is important to note that, ultimately, it is the Oireachtas that decides what powers are granted to the Central Bank. Having spent a year and a half listening to testimony, the banking inquiry highlighted for me that the Central Bank and the banking institutions in the State had not been challenged robustly enough in the period of the Celtic tiger. We, on this side of the House in Fianna Fáil, are not afraid to robustly challenge the Central Bank and the lenders.

In his statement earlier today the Minister stated provisions such as those in the Bill would mean that the European Central Bank would need to be consulted before legislation could be enacted. This is reflected in the amendment circulated by the Government. I have no difficulty with consultation. However, I remind the Minister that the whole point of the exercise in introducing the Bill is to give effect to the ECB's policy of making credit cheaper, in this instance for households. This is one of the main reasons the ECB is maintaining its base rate at the unprecedented level of 0%. The benefit of base rate reductions has only barely been felt by standard variable rate customers. It is also the case that countries such as France have relative interest rate caps in their national legislation.

Another important part of the legislation is a desire to end discrimination against existing bank customers. The reality underpinning the Bill is that the cost of funds for banks has fallen dramatically, their net interest margin is increasing all the time and the main banks in Ireland are strongly profitable again, which is welcome. Some of the rates which continue to be charged in the Irish market are utterly unjustifiable by any yardstick and need to be addressed. Fair treatment for customers should be a cornerstone of consumer protection provisions. We need a strong legislative framework to ensure this happens. The banks simply cannot be allowed to continue to rip-off customers safe in the knowledge that they will not be subject to any sanction or intervention by the House or the Central Bank. By introducing the Bill, Fianna Fáil is setting out a path for how this could be done in a responsible way. It is now time for the Oireachtas to act in the interests of consumers.

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