Wednesday, 1 April 2015
Ceisteanna - Questions - Priority Questions
Mortgage Interest Rates
1. To ask the Minister for Finance his views on the standard variable mortgage interest rates banks are charging customers; the difference between rates charged to new and existing customers; the difference between the rates charged here and in other eurozone countries; if he has discussed this matter with the banks; the steps he is taking to bring more competition into the mortgage market, in an effort to bring down variable interest rates; and if he will make a statement on the matter. [13402/15]
As the Minister is aware, Fianna Fáil has raised a Private Members' motion this week on the issue of excessive standard variable mortgage interest rates and the ability of the Government or the Central Bank to set interest rates. The motion calls on the Minister to use his influence, to express a view and to engage with the financial institutions directly and for the Central Bank to do the same. Standard variable rate mortgage customers are an exploited group of customers. They are paying way over the odds and something needs to be done about that.
I thank the Deputy for raising this important issue. Lending institutions in Ireland, including those in which the State has a significant shareholding, are independent commercial entities. I have no statutory role in regard to regulated financial institutions passing on the European Central Bank interest rate changes or to the mortgage interest rates charged. It is a commercial matter for each institution concerned. It is not appropriate for me, as Minister for Finance, to comment on or become involved in the detailed position or manner in which individual banks choose to put forward mortgage propositions to potential customers or how that relates to existing customers.
That said, the issue of regulation of interest rates remains a policy area under active review and this has been the subject of recent correspondence between the Department of Finance and the Central Bank. The current position is that the Central Bank does not have new proposals for the additional regulation of interest rates. The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations. It has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears.
As I stated in previous parliamentary questions, a previous deputy Governor indicated that, within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds and this is a course of action I expect the Central Bank to continually appraise.
The Deputy should be aware that the Governor of the Central Bank previously stated that it has long been understood that tight administrative control over the rates charged by banks would be counterproductive in ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants. In this regard, ongoing competition in the banking sector will be crucial in ensuring that the economy is provided with efficient and cost effective banking services. In this regard, there has been some movement on mortgage interest rates of late by a number of institutions which suggests that the market may well be entering a new and more competitive phase.
I thank the Minister for his response, which is quite similar in nature to the response given on the Minister's behalf by the Minister of State, Deputy Harris, last night during the Private Members' debate. The problem I have with the response is that the Minister did exert pressure on the banks back in 2011, in a very public way, when there was an ECB rate reduction and the pillar banks did not initially pass that reduction on to customers. The pillar banks were called before the Economic Management Council and the Minister and the then Minister of State, former Deputy Brian Hayes, made strong comments and at least one of the banks subsequently passed on that rate reduction to customers.
The Central Bank is not just the prudential supervisor of the banks and the regulator. It is also the consumer watchdog. Take Bank of Ireland as an example. Last November, it told the Joint Committee on Finance, Public Expenditure and Reform that its cost of funds is 1.15%. Its standard variable rate for existing customers is 4.5%. That is extortion by any measure. That level of a margin being applied on a particular group of customers is unfair. There has been some downward movement on variable rates, but a number of the banks excluded their existing customers from benefiting from that reduction. This is unfair and should be addressed. They have given the reduced rate to new customers, but not to existing customers who form part of the 300,000 customers affected.
The views the Deputy is expressing are shared widely by Members on all sides. As I said in my response, a previous deputy Governor of the Central Bank indicated that within its existing powers and through the use of persuasion, it would continue to engage with specific lenders that appear to have standard variable rates set disproportionate to their cost of funds. I will speak to the Governor of the Central Bank again and express the views expressed by Deputy McGrath and will indicate that those views are held generally in the House. I will ask him to consider what influence the Central Bank can bring to bear to bring variable mortgage rates closer to the cost of funds. However, the market movement is in that direction at present. We hope further progress can be made. New mortgages are available at much lower interest rates than the rates the Deputy has cited, but I hope existing mortgages also gain from the general downward movement in interest rates across Europe.
I welcome the fact the Minister is going to take up the issue directly with the Governor of the Central Bank. I have made it clear that I fully accept that neither the Government nor the Central Bank set interest rates, but they have significant influence. The Minister is in an influential position, as is the Governor of the Central Bank who has a key role in terms of consumer protection. There is no doubt but that the variable rates being charged to existing customers are way out of line with the cost of funds the banks currently face. As the Minister knows well, the cost of funds is at an historic low, with the ECB base rate at 0.05%, the cost of funds on the wholesale interbank markets exceptionally low and the level of interest being paid to savers and depositors is very low. Where banks are accessing funds, they are doing it exceptionally cheaply. I welcome the fact the Minister is going to take up the issue with the Governor and hope he will bring his influence to bear on the banks and that this will result in further downward pressure, particularly for the 300,000 existing customers, many of whom have not benefited at all from the recent announcement of rate reductions.