Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all words after "That" and substitute the following:"the Bill be read a second time this day six months to allow for scrutiny by an appropriate Select Committee to examine and address the following issues:

a) There are major constitutional issues which fall to be considered in relation to interference in vested property rights, the retrospective application of the proposals and the absence of an appeal mechanism.

b) Under the EU Treaties there is an obligation to seek an advisory opinion from the European Central Bank where domestic legislation is proposed which affects the workings of the Central Bank. This has not taken place. A failure to consult the European Central Bank is an infringement of Decision 98/415/EC and could lead to infringement proceedings against Ireland.

c) The Central Bank has not sought the proposed powers to regulate variable rate mortgages. The Central Bank is independent and the Bill provides only that it "may" issue directions in respect of interest rates. The Central Bank cannot be required to exercise the proposed powers. The Bill requires the Central Bank to assess whether market failure exists in the Principal Dwelling House mortgage market but assessment of competition issues comes within the remit of the Competition and Consumer Protection Commission.

d) Competition and the provision of choice for consumers is the best way to achieve a sustainable long term solution to the issue of high mortgage repayments and the proposed Bill is likely to restrict or limit competition in the mortgage market. Following meetings with the banks last year and ongoing pressure, the banks have made a number of reductions to their mortgage offers and some welcome competition is coming into the market.

e) Regulation of interest rates in the manner proposed in the Bill could have unintended consequences on the availability and cost of credit which would lead to consumer detriment in the longer term.

I will share time with Deputy Rock, with the agreement of the House.

I thank everybody who contributed so far for their interest in this important matter. As the House will be aware, I have tabled a proposed amendment to this Bill. The amendment is to delete all words after "That" and substitute that the Bill be read a Second Time this day six months to allow for scrutiny by an appropriate select committee to examine and address the important issues and key points, which are the major constitutional issues raised by the Bill, the obligation to consult the ECB on legislation of this nature, the Central Bank's stated position on this issue, the importance of competition as a sustainable and long-term solution to this issue, and the possibility that this Bill may have unintended consequences.

I fully understand that the intention behind the Bill is to help people with their mortgage repayments. As banks are slowly beginning to return to profitability, customers rightly feel that their mortgage interest rates should be coming down, not least when there remains a low interest environment in Europe, and I wholeheartedly agree. However, I have some significant concerns with the proposed approach in the Bill.

First, it is useful to consider how we have got to this position. This Bill comes against a backdrop where the interest rates charged on standard variable rate, SVR, mortgages in Ireland have diverged from the European Central Bank, ECB, rate in the past eight years. I was acutely aware of the difficulties this must be causing families and so discussed the issue at a meeting with the then Governor of the Central Bank, Professor Patrick Honohan, in early April of last year. At that meeting, I requested that the Central Bank conduct research into the factors impacting standard variable mortgage rates in Ireland, and this report was published shortly afterwards.

It is worth pointing out that this report found that interest rates on overall outstanding mortgages in Ireland are actually close to the European median, the Irish figure being influenced by the large number of low interest rate tracker loans which represent over 50% of all loans outstanding. This should not be forgotten in a proper analysis of this issue.

The Central Bank's report stated more specifically that the spread between the official ECB interest rates and the standard variable mortgage rates is relatively high in Ireland both by historical standards and compared to European peers. However, three factors are important determinants of this margin, namely, increased credit risk resulting from high levels of non-performing loans and lengthy and uncertain processes of collateral recovery; weak competition; and the constraints on bank profitability arising from legacy issues of the financial crisis, such as the increased regulatory requirements for capital.

The report also noted that policy steps to interfere with interest rates risked creating damaging side effects and stated that by discouraging entry, innovation and competition, such measures could result in higher spreads and higher Exchequer costs over the longer term. Owing to the difficulties faced by borrowers, I decided at that time to act in a concrete and effective way to try to resolve the issue. Last May, I met with the main banks and asked them to review their rates and products to provide options for borrowers to reduce their monthly mortgage repayments. Since then, lenders have announced a number of new initiatives which have resulted in reductions in mortgage interest rates for customers.

I am pleased to see reductions and competitive offerings continue to be announced. This is igniting the competition market between banks and will benefit customers in an immediate way. For example, last week AIB announced another reduction of 0.25% in its standard variable rate, SVR, and loan to value, LTV, rates for new and existing customers. It stated that this reduction on a €200,000 SVR mortgage could save a borrower up to €320 per annum, based on a 25 year term. This is an immediate and real saving for customers. KBC also announced rate reductions last week while on Friday the Central Bank published figures that showed principal dwelling house mortgages across all categories have declined over the 12 month period ending in the first quarter of 2016. The sharpest decline was observed for SVR or LTV variable rate mortgages, which fell by 49 basis points to 3.64% over the year ending in the first quarter of 2016. Permanent TSB and Bank of Ireland offer lower rates through managed variable rates and fixed rate products, respectively. The banks are offering different products which contain lower interest rates. As I have often stated, I recommend customers shop around in order to avail of the best products in the market which suit their circumstances.

These changes show the actions I have taken continue to have an effect. In the programme for Government, we have committed to take action on the issue. We can all agree that we want to take action on the issue that is targeted, thought through and which can deliver the best possible results for borrowers now and in the long term. Legislation is a very significant step for anyone, in government or in opposition, to take. It is, therefore, not something we should undertake lightly or without full consideration of its effects, intended or unintended. I will highlight some of the concerns I have with the proposed Bill.

Commentators have raised concerns about constitutional issues. Deputy Michael McGrath referenced Investec, which issued a note to clients approximately two weeks ago. These concerns must be addressed regarding compulsory interference with vested property rights. There are concerns around the retrospective application of the proposed legislation to private contractual arrangements entered into under the existing legal and regulatory structure in the absence of an appeal mechanism for the lenders and regulated financial service providers targeted in the legislation. Any such legislation would need to provide for fair procedures and be a proportionate response to the issue in the interest of the common good. It would also need to come within the permitted constitutional exceptions for interference with property rights.

Second, and more immediate, under EU treaties there is an obligation to seek an advisory opinion from the European Central Bank, ECB, where domestic legislation is proposed which affects the workings of the Central Bank. EU rules require member states to consult the ECB on draft legislative provisions falling within the ECB fields of competence and the member state must ensure the ECB is consulted at an appropriate stage, enabling the authority initiating the draft legislative provisions to take into consideration the ECB's opinion before taking its decision on substance. Consultation has not taken place regarding the Bill and a failure to consult with the ECB in this regard can result in infringement proceedings before the European Court of Justice taken by the European Commission against the member state. I do not know whether it is within the Ceann Comhairle's competence or it is a matter for the Government, if the Bill passes Second Stage, to inform the ECB, and I have asked the Attorney General to advise me on where the responsibility lies.

Third, the Bill gives powers to the Central Bank to regulate variable rate mortgages, although the Central Bank has never sought these powers. The Governor of the Central Bank, as well as the previous Governor, has made it clear that he does not consider the Central Bank should be given the power to regulate interest rates. The Central Bank is independent and the Bill provides only that it may issue directions in respect of interest rates. There must be some doubt about the efficacy of giving a power that it does not want to an institution which cannot be required to exercise it. This is the nub of the problem with the legislation.

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