Joan Burton (Dublin West, Labour)
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Question 90: To ask the Minister for Finance his views on the fact that monthly mortgage repayments have increased by approximately €40 to €50 on a €300,000 variable mortgage as a result of the latest quarter point increase by the ECB on 8 March 2007; if he is aware that this is the seventh successive such increase since December 2005, that sub-prime mortgage holders are reported to be spending as much as 25% more a month servicing their mortgages than they did before interest rates started to rise; if he will implement measures to provide clear information for mortgage holders on the effect of projected future interest rate increases on their monthly payments; if his attention has further been drawn to the fact that the European Central Bank has indicated the likelihood of further interest rate rises; and if he will make a statement on the matter. [10253/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The level of interest rates is determined by the independent European Central Bank, ECB, in fulfilment of its mandate to secure price stability for the euro area as a whole. The impact of ECB interest rate changes on household incomes in Ireland is an important element of the context for the Government's overall economic and fiscal strategy. This strategy has successfully delivered sustained economic growth, record levels of employment, low unemployment and rising incomes. It is has also underpinned the achievement of a strong and responsible fiscal position within which significant tax and expenditure priorities have been achieved. It enables us to plan the delivery of a major programme of investment in our economic and social infrastructure under the National Development Plan 2007-2013.

Households currently experiencing higher mortgage repayments on account of rising interest rates benefit significantly from a range of supportive economic and financial factors, including, for example, low income tax rates and a relatively high savings rate in respect of which savers are increasingly benefiting from higher retail interest rates. The Finance Act 2007 gives effect to those measures I announced on budget day that are designed to sustain our economic performance and improve both take-home pay and the affordability of housing. These measures include a doubling in the ceiling for mortgage interest relief for first-time buyers as well as increases in relief for other mortgage holders.

The sub-prime mortgage market in Ireland is small and exists to serve a need for mortgage finance by borrowers who experience difficulty in accessing finance from mainstream lenders owing to an adverse credit record or difficulties in verifying income. Sub-prime borrowers tend to refinance their mortgage in the standard mortgage market once they have restored their credit record. The Consumer Credit Act 1995 requires information on key aspects of mortgage lending to be provided to borrowers on a mandatory basis. This includes, in particular, information on the impact of an increase of 1% in interest rates in the first year of the mortgage.

The Financial Regulator's consumer director provides extensive information to help consumers make informed choices regarding mortgage products. The consumer director's cost surveys, consumer guides and fact sheets assist consumers in shopping around for the best available mortgage deal. Major efforts have been made to raise the level of awareness of the importance of responsible borrowing behaviour. Against the backdrop of the rising trend in interest rates, the Financial Regulator has published information for consumers on the potential impact of these increases on different mortgage products.

Mortgage interest rates in Ireland remain low by historic standards. This reflects both the current level of ECB rates, which are lower than those prevailing in either the United States or the United Kingdom, and the increasingly competitive nature of the Irish mortgage market which ensures that margins on mortgage lending remain low. I am confident the economic and fiscal framework now in place is properly aligned to the current requirements of the economy and can adjust to potential changes in the financial environment over time.

Joan Burton (Dublin West, Labour)
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The Minister referred three times today to the additional mortgage interest relief provided in the budget. Does he agree that the latest increase in mortgage interest rates, the seventh since December 2005, means the impact of the increase in mortgage relief has been fully absorbed for most mortgage holders? Welcome as the increased relief was, it is now effectively used up.

Has the Minister heard of the phrase "toxic debt", which is used widely in the United States in reference to the sub-prime market? It refers to the situation of a family that has borrowed heavily, usually initially for housing purposes, before proceeding to refinance its borrowing, perhaps to take in other short-term borrowings such as car loans and so on. With continuous increases in the rate of interest, the net result for such families is a growing unaffordability of the debt they have accumulated.

The Minister referred to the tables published by the Financial Regulator on various mortgage prices and products. Does he agree these tables are not easily readable for most people? Many families are exposed on remortgaging and credit card debt, with the latter currently running at some 13%. What is the Government doing to help people who are moving into the danger zone of toxic debt and who are particularly vulnerable to interest rate increases?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not accept that the increase in mortgage interest relief for first-time buyers has been wiped out by the ECB interest rate rises in recent months. It depends on the circumstances of the household concerned. In the case of a mortgage of €250,000 taken out for a typical loan period of 33 years for example, a 0.25% rise in interest rates results in an increased payment of some €38 per month. This compares with increased monthly tax relief of €53 for a married couple and some €67 for a single person. For a mortgage of €350,000 over 33 years, a 0.25% increase results in an increased repayment of €53 per month, compared with increased tax relief of €128 in the case of a married couple and €67 for a single person.

It was estimated at budget time that approximately 125,000 first-time buyers had interest payments of sufficient size to benefit from the increased level of relief. As interest rates have increased, it is likely that the numbers benefitting have also increased. I made my decision on this matter in a way that would help buyers and those who already have mortgages without affecting affordability via an increase in house price inflation. This was against a background of emerging evidence of a softening housing market. It was the right approach to take in the circumstances that pertained.

I have heard the term "toxic debt" in regard to sub-prime lending. It is a feature of the liberalised market in the United States where some companies have got into serious difficulties as a result of the sub-prime lending policies they have pursued. There is no evidence from the Financial Regulator that a similar situation exists here. The sub-prime mortgage market is relatively small. There is evidence that where people have regained credit with regard to how they are viewed as borrowers, they have moved from the sub-prime market back into the mainstream mortgage market.

Joan Burton (Dublin West, Labour)
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I recall that when the Minister introduced the extra mortgage interest relief in the budget in December, he told us it would compensate for the increase in interest costs on a typical mortgage. Mortgage costs had risen in October and have gone up again since he made that announcement in December, and the bulk, if not all, of the extra interest relief has been absorbed by both interest rate increases. Will the Minister comment on that? Has he excluded the October increases from the effect on an average family? He seems to be playing with the statistics.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am not playing with statistics, just dealing with the Deputy's assertions. The decision taken brought a direct benefit to people involved in the mortgage market, not just to prospective buyers but to those already in the mortgage market for the previous seven years, totalling 125,000 first-time buyers. In this way, the greatest possible benefit could be given to the greatest number of people requiring assistance.

The Deputy knows interest rate policy is the independent ambit of the ECB. We have seen a number of increases of 0.25% over the past 12 to 18 months. Further increases are not expected, but one cannot anticipate what the ECB may do. It must be acknowledged that we are operating in a historically low mortgage interest environment against a background of greater disposable income and higher income growth. The fact that there are so few defaults on mortgage commitments, albeit against a higher interest rate environment in recent times — while the overall interest rate is low, there have been increases — indicates people have been able to meet their commitments.

The Deputy referred to those in the sub-prime market. There is evidence they have moved into the mainstream mortgage market because of the improved economic situation, which, thankfully has been open to them as well as to others.