Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

1. To ask the Minister for Finance his views on the impact on mortgage holders, tracker and standard variable rate customers and on the economy generally of the possibility that interest rates may begin to climb again over the period ahead; and his plans to address the matter. [16460/14]

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Question No. 1 in my name relates to our historically low interest rates, particularly for tracker mortgages. As the Minister knows, the banks are coming before the finance committee this week to give an update on how they are handling the mortgage arrears crisis. The purpose of this question is to have a debate on the impact of any future possible interest rate increases on mortgage holders and on the economy generally.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As the Deputy is aware, I have no statutory role in mortgage interest rates charged by regulated financial institutions. It is a commercial matter for the banks concerned. The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned. The general point raised by the Deputy is an important one and worthy of ongoing review by Government. The country does not have control of monetary policy; that responsibility rests with the European Central Bank.

Changes in interest rates over recent years have, by and large, been downward, reaching the current historic low levels, not just in the eurozone but also in the United Kingdom, the United States and elsewhere.

For some time the focus of interest rate policy has been aimed at providing a sustainable environment for economic recovery in the eurozone and beyond to take hold.  The current low rates have been beneficial for households in Ireland where the excesses of the previous decade have left a legacy of indebtedness without parallel in the history of the State.  The Deputy has no need to remind me of the significant fiscal adjustment required in recent years, much of which has been borne by households across the country.  Income reductions, increased taxes and new levies and charges have been necessary to restore order to the public finances.  The reduction in key ECB interest rates has served to moderate some of this burden, particularly for those holding tracker rate mortgages. Recent Central Bank analysis confirms that some households have been in the fortunate position to use this low interest rate environment to deleverage and pay down debts. Where other families have been faced by mortgage distress, a comprehensive framework to support these households through their difficulties has been introduced.  Reform of the insolvency legislation has been introduced to allow those unable to find a solution to their indebted circumstances the types of option expected in a modern, functioning economy.

Speculating on the magnitude and timing of future interest rates movements is a hazardous exercise and one in which I do not wish to engage.  My focus and that of the Government is on implementing the necessary policies to promote and foster economic growth.  Ultimately, a return to economic growth will underpin sustainable public finances, increase employment and improve incomes, thereby protecting households as interest rates inevitably rise at some future point. For now, however, as the president of the European Central Bank, Mr. Mario Draghi, confirmed at the ECB press conference last week, the key ECB interest rate remains unchanged at 0.25%.  According to the ECB, incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with its previous assessment. However, the ECB also expects that there will be a prolonged period of low inflation. Against this background, the key ECB interest rates are expected by commentators to remain low for some time.  We will, of course, keep all of these matters under constant review and adjust policy as circumstances evolve.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

This is an important issue worthy of debate. Considering that the average ECB rate since the introduction of the euro is approximately 2.5% and that the rate went as high as 4.75% approximately 12 years ago, we can see that today it is at an historically low level of 0.25% and it may even come down a little further to deal with the issue of deflation in the eurozone. As night follows day and the Minister has acknowledged, it is inevitable that over time the interest rate will increase, with a direct impact on tracker mortgage holders and a possible indirect impact on variable rate mortgage holders. When considering the mortgage crisis we face and the number of people in arrears, we need to bear in mind that we are facing a potential timebomb as a country. Nobody is expecting the Minister to have all the answers, as he does not control monetary policy or the interest rate policies of the banks. I accept this fully. Nevertheless, we must debate the issue and get a handle on the potential impact on mortgage holders and the general economy if interest rates increase. As that is inevitable in the medium term, we need a policy response to be prepared at least to respond to such a scenario.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Concerns have been very well expressed by the Deputy. Given that the trajectory of interest rates by the European Central Bank is still downwards and with low inflation being the primary concern rather than increasing inflation which would require raised interest rates, it is reasonable to agree with commentators who almost universally expect interest rates to remain low for some time to come. Certainly, there is a signal in that respect. Perhaps the more appropriate action would be for everybody with a borrowing problem to use the low interest rate period to improve their position.

We will assist mortgage holders, as we have been doing, by continuing to press organisations that provide mortgages to make these mortgages sustainable, if they are not sustainable now.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Many people who can afford to pay off their mortgages at an accelerated rate are deleveraging. There is a cohort who can do that. For many it is not an option. Rates are likely to remain low for tracker mortgages for the foreseeable future. Inevitably, however, they will begin to increase. As well as stress-testing the banks, the Department of Finance needs to stress-test mortgage holders and the impact on the economy of the likelihood of interest rates rising over the next two- to five-year horizon. Will the Minister at least give a commitment to examine the issue? The historically low interest rates are a key risk for the economy. They are great for those on tracker rates, many of whom can pay additional sums, but many are not even able to keep up with their repayments at the current rate, let alone face the prospect of an increase in the tracker rate. It is a risk facing the economy and the Department needs to examine it even though it may not crystallise until the medium term.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I do not set interest rates. The European Central Bank's setting of rates is one of the primary factors in establishing mortgage interest rates and we have no control over that. The action we can take is limited even though, like the Deputy, we foresee the danger. One of the traditional responses would be to compensate through the tax system, but the previous Fianna Fáil Government abolished mortgage interest relief. I extended it in our first year in Government for a further year. That cushion has been taken out of the system as well, or will be in 2018. I do not see what a general review of the position is going to achieve. If the Deputy has specific solutions to suggest I will have them evaluated.