Michael McGrath (Cork South Central, Fianna Fail)
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118. To ask the Minister for Finance his views that reductions in fixed mortgage rates offered by the banks represent an inadequate response to the widespread public concern over high variable rates; that it is important that all domestic banks reduce their core variable rate product offering; his plans to address high mortgage rates by the non-deposit taking retail credit, sub-prime, sector; and if he will make a statement on the matter. [33182/15]

Michael McGrath (Cork South Central, Fianna Fail)
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The Minister for Finance is very familiar with the topic of high variable interest rates being charged on up to 300,000 mortgage customers. The purpose of this question is to put it back on the political agenda. Some progress, albeit modest, has been made on this issue which has been firmly put on the political agenda. I believe the Minister is in the middle of a second round of, or has concluded, meetings with the banks which he promised to hold in September. It would be good if he could give the House an update on those talks. Is he still considering the two options he outlined earlier this year, namely, increasing the levy on the banks or the introduction of legislation to deal with this issue of excessive interest rates?

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy knows, I have been aware of this issue for some time and have taken steps to ensure the banks provide real options for borrowers. To summarise actions taken to date, I requested a report from the Central Bank on the topic, which was published in May. I also met with the six main mortgage lenders and outlined my view that the interest rates being charged to Irish customers were too high.

I have recently concluded a further series of meetings with these banks and the reality is that the majority have put options in place to allow borrowers to reduce their monthly repayments. Traditionally borrowers focused on standard variable rates but borrowers should at least consider other options. While individual borrowers must decide what suits their particular circumstances, some of the fixed rates being offered are now substantially below what the standard variable rate, SVR, was in May. These rates offer substantial savings to borrowers and also offer security as to monthly repayments over a specific period of time. At the end of that term, borrowers can then revert to a standard variable rate if that is what they prefer. I would, therefore, encourage borrowers to contact their bank to see what is available to them in their particular circumstances or consider moving to another bank if the offer is not satisfactory.

I would also point out that lenders have not just reduced fixed rates. One lender significantly reduced its SVR, for example, while another has embarked on a new pricing strategy based on property valuation. I asked the banks to provide options by which customers might reduce their monthly repayments and I believe options have been put in place.

While I have not met all mortgage providers operating in Ireland, changes to interest rates by the main lenders should drive competition in the market and exert downward pressure on other lenders to reduce their rates in line with other providers. Sub-prime lenders operate in a particular niche and deal with customers who present a different risk profile to other customers, hence their rates will be higher other lenders.

Competition is the best long-term way of reducing interest rates paid by Irish borrowers and ensuring that Irish banks offer a sustainable product range. Higher than warranted mortgage interest rates will encourage new entrants to the Irish market over the long term. As the Deputy will be aware, the Government has undertaken a number of initiatives in order to promote competition in the market. For example, it introduced the changes to section 149 of the Consumer Credit Act 1995 in the Central Bank (Supervision and Enforcement) Act 2013 for new entrants. This section regulates fees and charges and the changes mean that it does not apply for the first three years of operation of new entrants to the Irish banking sector as new entrants to the mortgage market bring welcome competition to this sector.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. Several banks have introduced new options, which are always a good thing, but these options are very selective. They are of most benefit to new customers in particular. Many existing customers continue to be discriminated against and the options simply are not for everyone.

The following are the actual standard variable rates still being charged by the banks today: Bank of Ireland, 4.5%; Permanent TSB, 4.3%; KBC 4.5%. or 4.3% if the customer opens a current account with it; Ulster Bank, 4.3%; AIB, 3.65%; ACC, 4.4%; and Danske Bank, 4.95%. I could go on and get into the vulture funds and the servicing companies now managing loan books that have been sold.

Greater fixed rate products have been offered but they come at a price, as the Minister well knows. Existing customers continue to be charged much higher rates than new customers. The Minister has concluded his second round of meetings with the banks. Is he satisfied that they have done enough? Have the banks satisfied the Minister, because I am not satisfied? Is the threat of a levy and-or legislation now off the table? Has the Minister concluded his assessment or is it still an open book on his file?

Michael Noonan (Limerick City, Fine Gael)
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I thank the Deputy for his supplementary question. He will recall that the Central Bank report published last May, to which I referred, stated that there was an excessive margin being charged in Ireland on variable interest rates but it disagreed that the margin was as big as has been cited in debates here on several occasions. The banks have moved to lower that particular margin. AIB has had made three reductions and it is the biggest mortgage provider in the country. It is down to 3.65% and it does not vary between new mortgages and existing ones. Permanent TSB has moved from its variable standard rate to what it describes as a managed variable rate and has introduced the concept of loan to value.

In the best loan-to-value situations they are offering money at 3.6%, I believe, and then it varies with loan-to-value rates, so there is significant movement. There are dozens of interest rates being offered now in different circumstances and I wish to see how the market operates and if competition will kick in. There is a reluctance among people to change. There is a type of inertia which is leading to individuals staying with their existing mortgage holders, but there is much better value if people shop around. It is not something one must fix for life - one will not get that option anyway. Normally, one fixes for one, two or three years and people can then revert to standard variable rates. At the conclusion of my meetings with the banks I said that if we are all around, we will talk again early in the new year and we will see how competition is operating.

On the question of the levy, there has been a levy in place over the last number of budgets. It will be a matter for the budget, and whether the levy will be maintained as it is, increased or reduced is a matter for announcement on budget day.

Michael McGrath (Cork South Central, Fianna Fail)
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Reading between the lines, it sounds as if the Minister has made up his mind that the banks have gone far enough to satisfy him. I believe he is letting the banks off the hook, because they have not gone far enough. Yes, there have been improvements in the product offering, the fixed rates have come down and the managed variable rates are an innovation, but for many customers who are in negative equity or have very little equity and are really struggling there is little or no improvement. I have outlined all the variable rates still being charged by banks. Many of them are still up around the 4% to 4.5% rate and they are even higher in some cases. That is excessive when one considers the very low cost of funds that the banks are facing at present, the price that consumers must pay by entering into a fixed rate, the loss of flexibility they encounter when they do that and the fact that existing customers are being discriminated against. When the Minister says that if he is still here he will meet the banks again in the new year, it sounds as if the threat of the levy being increased or of legislation being introduced to give more powers to the Central Bank appears to be off the table. The Minister has been bought off too easily by the banks on this matter.

Michael Noonan (Limerick City, Fine Gael)
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The Deputy is jumping to conclusions. While the headline variable rates that the Deputy outlined in his initial contribution are correct, other much lower rates are available to mortgage holders-----

Michael McGrath (Cork South Central, Fianna Fail)
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For some customers.

Michael Noonan (Limerick City, Fine Gael)
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-----either from their own bank or mortgage provider or by switching.

Michael McGrath (Cork South Central, Fianna Fail)
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It is very difficult to switch.

Michael Noonan (Limerick City, Fine Gael)
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What puzzles me at present is why more people are not switching. There is demonstrably an amount of money to be saved if people change, yet there appears to be an inertia in the system and they are not changing.

Michael McGrath (Cork South Central, Fianna Fail)
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It is not easy to do.

Michael Noonan (Limerick City, Fine Gael)
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I wish to let it go for a few months and see if the new competitive situation will operate to the benefit of customers. We have made significant progress. The Deputy's Private Members' Bill, which I complimented as a good initiative, sought to provide that the Central Bank should intervene to fix interest rates if they went above 3%. We have the two biggest mortgage providers down to 3.65% now, so we are coming close to the position the Deputy outlined.

I am not sure what will happen with interest rates internationally but there are very strong indications that the cycle of rising interest rates could commence this autumn when the US authorities increase interest rates. People should look seriously at fixing now because we might be at the bottom of the cycle. If one fixes, one does not fix irretrievably. One can always revert to a variable rate subsequently.