Michael McGrath (Cork South Central, Fianna Fail)
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4. To ask the Minister for Finance if he is satisfied with competition levels in the Irish mortgage market, particularly the impact on standard variable rates; his views that action is required to ensure equal treatment between existing and new mortgage customers; and if he will make a statement on the matter. [1517/16]

Michael McGrath (Cork South Central, Fianna Fail)
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As the Minister knows, I have consistently raised the issue of standard variable interest mortgage rates being charged in this country, particularly the rates being charged on approximately 300,000 existing bank customers on a standard variable rate. There is a marked difference between the rates they are being charged and those being offered by financial institutions to new customers. That is not good enough and the issue still needs to be addressed. Unfortunately, competition does not look set to resolve the matter and the question is what action the Minister is prepared to take.

Michael Noonan (Limerick City, Fine Gael)
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The Government's position is that competition is the best way to achieve a sustainable long-term solution to the issue of high mortgage repayments. The Government made a commitment in the statement of Government priorities for 2014 to 2016 to applying downward pressure on mortgage rates by increasing and supporting competition in the market and it has undertaken a number of initiatives in this regard. As the Deputy knows, I have specifically taken steps to ensure the banks provide options for mortgage holders to reduce their monthly repayments. Last May, I requested a report from the Central Bank on the topic that was subsequently published. I also met representatives of the six main mortgage lenders in May and outlined my view that the standard variable rate being charged to Irish customers was too high. The banks agreed to review their rates and products and, by the beginning of July, to have simple options to reduce monthly mortgage payments for standard variable rate customers. In September, I concluded a series of follow-up meetings with these banks and the reality is that the majority have put options in place to allow many borrowers reduce their repayments. These options range from lower variable rates to new suites of variable rates based on loan-to-value and reductions in fixed rates.

I, therefore, encourage borrowers to contact their bank to see what is available to them in their circumstances or consider moving to another bank, where possible, if the offer is not satisfactory. In this regard, the Competition and Consumer Protection Commission, CCPC, website, www.consumerhelp.ie, is a valuable source of information on the rates charged by various financial institutions. In addition, the CCPC is currently running a mortgage switching campaign and it has a mortgage switching tool on the website, which should allow borrowers compare rates charged across institutions. Furthermore, I am pleased to note that some lenders offer repayment of legal fees or cash incentives to borrowers switching mortgage provider.

I asked lenders to provide simple options to reduce monthly mortgage payments for standard variable rate customers and the reality is that the majority have put options in place. I am pleased to see that the majority of lenders have offered their new reductions and products to both new and existing customers. I am also pleased to see that the banks continue to introduce new initiatives as the competitive dynamics in the market increase. As recently as last week, one bank introduced a 0.5% reduction on managed variable rates for new or switcher mortgages with a loan to value of 80% or less. Another bank reduced its standard variable rate in December.

Michael McGrath (Cork South Central, Fianna Fail)
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There have been new initiatives for new customers but the progress for existing standard variable rate mortgage customers has been extremely limited or non-existent in some cases. We can consider the rates at which banks can currently access funds. In October, Bank of Ireland raised five-year money at just over 0.7% and AIB can raise money at similar rates. The Bank of Ireland standard variable rate is six times the rate at which that bank can raise five-year money on the markets, which is outrageous. It is simply unjustifiable.

I would be the first to acknowledge that banks must make a margin and profit, so I have no difficulty with that. Existing standard variable rate customers are being screwed by the Irish banks and nobody is doing anything about it. That is unacceptable. Many people are not in a position to switch as they are trapped for a variety of reasons relating to their own financial circumstances. It is not good enough. The Minister started the process in May last year but he did not see it through. He made the threat of imposing a levy or legislation but that has not come about.

Michael Noonan (Limerick City, Fine Gael)
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Competition is working in the market now and it will continue to work as more institutions get involved. The Central Bank's statistical release of 11 December 2015 stated that mortgage interest rates generally declined during the third quarter of 2015. Variable principal dwelling house rates declined by 17 basis points over the second quarter, with corresponding buy-to-let rates falling by 14 basis points.

Aside from new competition to the market, switching represents the best way to foster competition between the lenders currently operating in the market. Central Bank research suggests that 21% of existing private dwelling home, PDH, variable rate mortgage customers could save by switching their provider and I encourage customers to ascertain whether options are available to them to reduce their payments by switching provider or product. I expect that if the financial institutions are convinced there is a threat they will lose existing customers, they will reduce the rates currently charged to customers.

Michael McGrath (Cork South Central, Fianna Fail)
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There certainly is a degree of competition for new mortgages and for those who are in a position to switch. I would be the first to advocate to those who have equity in their homes and who are in a position to switch their mortgage from one provider to another to avail of a better interest rate to do so. People of course should shop around and I have asked the Central Bank to consider introducing a code of conduct on mortgage switching. Such a code is in place if one wishes to switch one's current account but no such code is in place if one seeks to switch one's mortgage. Many people are put off by the hassle involved in switching their mortgage-----

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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A question please. Thank you.

Michael McGrath (Cork South Central, Fianna Fail)
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-----but they certainly should do this where they can. However, this does not take away from the fundamental fact that many people do not have this option and are trapped. They are trapped by reason of financial circumstance such as a reduction in their income or they may be in negative equity and other banks are not interested in taking their business.

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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Thank you.

Michael McGrath (Cork South Central, Fianna Fail)
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They are being denied interest rates that could result in a reduction in their monthly repayments in the order of hundreds of euro.

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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I call the Minister. Thank you.

Michael McGrath (Cork South Central, Fianna Fail)
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This is a cohort of people Members really should be trying to help. A fixed rate is not an option for everyone because one loses flexibility if one enters into a fixed rate arrangement.

Michael Noonan (Limerick City, Fine Gael)
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Yes, but in the majority of cases, those inhibitions do not apply. However, there is a very significant inertia in the desire of people to switch to a different mortgage provider even when they can make significant savings. It is hard to understand this at times and probably is to do with the fact that if people have a mortgage for several years, even if they are to make cash savings, they do not see the purpose of switching. There is an inertia in the system and the various mechanisms have now been put up online to help people who wish to switch to do so.

On the general review of the banks, I met the banks twice. This is an ongoing issue and as I meet the banks in the future, if I am back in office, this will be a high priority on the agenda of any meeting with the banks.