Michael McGrath (Cork South Central, Fianna Fail)
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1. To ask the Minister for Finance the steps he will take to ensure that standard variable mortgage interest rates are reduced; if he will provide details of his recent engagement with the Central Bank of Ireland and the banks on this issue; and if he will make a statement on the matter. [17818/15]

Michael McGrath (Cork South Central, Fianna Fail)
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This question raises once again the issue of standard variable mortgage interest rates, an issue we debated in this House on a number of occasions. The purpose of the question is to get an update from the Minister on the steps he is taking to address the issue of excessive standard variable mortgage interest rates in Ireland, to obtain details of his engagement with the Governor of the Central Bank and the banks, and to update the House on progress on this key issue.

Michael Noonan (Limerick City, Fine Gael)
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As I outlined last week in the spring economic statement, the mortgage interest rates being charged by the banks in Ireland have not been reduced in line with the rate reductions by the ECB. I discussed the issue of mortgage interest rates with the Governor of the Central Bank on 2 April. As a result of this meeting, the Governor is currently reviewing the issue of the standard variable rates charged by the lenders. The Governor should be in a position to present this analysis to me in the coming days. I will then meet the six principal mortgage lenders in order to discuss this issue.

The lending institutions in Ireland, including those in which the State has a significant shareholding, are independent commercial entities. I, as Minister for Finance, have no statutory role in regard to regulated financial institutions setting interest rates. 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.

Equally, the Central Bank has no statutory role in the setting of interest rates by regulated entities, 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. However, if the Central Bank proposed to me that it should get control of the regulation of interest rates, I would legislate for that.

It should be noted that there have been moves on interest rates. As the Deputy will be aware, on 1 May AIB Group announced a number of reductions to its mortgage interest rates for owner-occupier and buy-to-let mortgages.

A series of reductions over a fixed timeframe would be acceptable to me, and in that context I welcome AIB's announcement as a good first step. Competition between the banks will be crucial in ensuring that the price that the customers have to pay moves in the right direction.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply.

Most people understand "variable rate" to mean that the rate will vary in line with market conditions. I am sure the Minister will agree that the banks would not be too slow in hiking up their variable interest rate if conditions deteriorated in terms their cost of funding, for example. Therefore, the rates need to come down. It is very clear now that Bank of Ireland, Ulster Bank and a number of other banks are playing hardball. They are not just going to roll over when they are called in to a meeting in the Department of Finance. Therefore, the Minister for Finance will need to have a plan B.

The AIB reduction is very welcome. It is modest but a step in the right direction. We need further rate cuts. A 1% cut in standard variable rates across the board would put about €400 million into the pockets of mortgage holders throughout the country, or 300,000 families. That would be a very significant boost and stimulus to the domestic economy. There is clear discrimination against existing customers. Bank of Ireland, Permanent TSB and KBC charge 4.5% to existing customers but significantly lower rates to new customers. That is simply unfair. The Minister needs to outline what he will do to bring competition into the market. What will be his message to the Central Bank and the banks when he gets around to meeting them?

Michael Noonan (Limerick City, Fine Gael)
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The Central Bank figures show the average standard variable rate for a primary dwelling house is 4.2%. Like Deputy McGrath, I welcome AIB's reduction, announced last week. It is the second reduction that AIB has made, and I hope the other banks will follow suit.

As I explained previously, the Central Bank is currently doing analytical work on the main lenders, namely, AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC. It is analysing the margin above the cost of money that the institutions are imposing for variable-rate mortgages. As soon as I get the data from the Central Bank, I intend to engage with each of the banks separately. I will ask them to justify their margin and explain why what they are doing is different from what the Central Bank analysis suggests. We will proceed from there. Ultimately, competition in the marketplace is the best lever to encourage lower interest rates. AIB has started the process and I hope others will follow. There are now some smaller lenders entering the mortgage market, so competition is increasing. I would encourage that.

Michael McGrath (Cork South Central, Fianna Fail)
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Just as IDA Ireland is knocking on the doors of multinationals abroad, the Department of Finance and agents working on the Minister's behalf should be knocking on the doors of banks abroad to determine whether they would be willing to enter the Irish mortgage market to provide badly needed competition.

We also need an active switcher market. AIB, which now has the lowest rates in the market, should be encouraged to make resources available to advertise that and actively encourage customers of other banks to switch their mortgage. That is the kind of dynamic we need in the market. It is only when consumers have the option of switching mortgage from one bank to another to avail of a better interest rate that some of the other banks that are charging higher rates might reduce theirs.

This issue will simply not go away. It is gaining momentum. The fact is that the rates in Ireland are way out of line with the average eurozone rate, as the Minister knows. He read into the record the average rate in Ireland of 4.2%. It is 2.09% in the eurozone area, which is exactly half the rate here. Can the Minister clarify when he plans to meet the Governor of the Central Bank? He indicated it would be this week. Is that still the plan? When does he plan to meet the six main lenders?

Michael Noonan (Limerick City, Fine Gael)
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The information I have from the Central Bank is that the European average is 2.3%, not 2.09%.

Michael McGrath (Cork South Central, Fianna Fail)
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That figure is a month out of date.

Michael Noonan (Limerick City, Fine Gael)
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These are Central Bank figures; they are not my figures.

With regard to knocking on the doors of banks internationally, there was reluctance among foreign lenders to get involved in the Irish mortgage market until quite recently for the reasons we all know about, including high levels of arrears and difficulty in collecting. These factors discourage lenders from entering the market, but this is now righting itself as 115,000 mortgages have been reconstructed. There is now an indication that banks and other lenders outside the jurisdiction have an interest in getting into the market.

I did not say I would be meeting the Governor this week; I said I would be receiving the analysis that the Governor promised me. I believe I will have it sometime next week. My private secretary is arranging meetings with senior management of the six institutions that I referred to. I hope I will have seen them by mid-May.