Thursday, 16 December 2021
Ceisteanna Eile - Other Questions
Mortgage Interest Rates
99. To ask the Minister for Finance his views on whether there is scope for increased competition for loans and mortgages within the European Union; and if he will make a statement on the matter. [62134/21]
After such an explosion of festive goodwill, I am loath to ask about mortgages, but I am afraid I am going to have to. As the Minister of State knows, Ireland has one of the highest mortgage rates in the eurozone. I ask him what efforts are being made by the Government to look at competition across the EU for mortgage rates and for loans.
While competition issues generally are primarily a matter for the Competition and Consumer Protection Commission, competitive pressures in the banking sector can clearly have an effect on the functioning of the financial system and on the quality and price of credit and other banking services provided to customers. It is accepted that the Irish retail banking system is relatively concentrated by international standards and the recent decisions by some banks to leave the Irish market will further impact on this. However, against this, it should also be noted that some new lenders have entered the market and are playing a greater role in the provision of new mortgage lending. More generally, it is likely that increased competition in the provision of financial services globally will take place and that this will have an influence in Ireland with potential new entrants to both bank and non-bank lending, deposit-taking and payments markets for households and businesses.
The European Union’s initiatives in the context of the capital markets union, which aims to improve the provision of financial services across borders within the Union, also have the potential to further improve levels of choice regarding savings and investments for consumers, and to improve access to finance for businesses in the Irish economy. Further, the scope for provision of services within the Union will be enhanced by the adoption of digital financial technologies already under way.
Even in a concentrated banking system such as that in place in our economy in recent years, price competition is possible, particularly in a growing economy. Trends show that interest rates in Ireland have been falling in recent years, providing benefit to consumers. Interest rates on new mortgages, excluding renegotiated mortgages, have fallen from 4.05% in December 2014 to 2.73% in October 2021. SME and consumer loans interest rates have also declined over the same period. I fully appreciate that enhanced sustainable competition in the market will be of benefit to consumers. Accordingly, the review of the retail banking market which is now under way in the Department of Finance will assess various aspects of the banking market and will consider options to encourage greater competition in the credit and banking market, including possible options to develop the mortgage market.
I want to pick up on one of the last points. The Minister of State mentioned the very welcome decline in interest rates to an average of 2.73% in this State in October but we have to remember that compares to a eurozone average of 1.28%, so it is more than double the average for comparative European markets. To put that into actual figures, the average Irish mortgage holder will pay almost €180 a month more for every month of their mortgage compared to the European average, so that can total €2,200 a year. The Minister of State rightly points to what is a concern that those of us who sit on the finance committee have been going through for the past year, namely, the announced departure of two very significant lenders from this market in the last calendar year. This is very worrying. Their replacement by new lending options has been welcome but, we have to be frank, it is not a great deal. We cannot replace the likes of Ulster Bank with what we are seeing coming into the market. It was absolutely a pillar of Irish lending for over a century.
The Minister of State referred to the opportunities within the capital markets union. The Minister, Deputy Donohoe, is in Brussels today to discuss that at the eurozone meeting as President of the Eurogroup. I ask the Minister of State where is the enthusiasm and the rush to actually get this done.
As I said, there has been a reduction, although I understand the Deputy’s point that despite the 2.73% rate available since October this year, it is higher than European norms. In truth, the reason for that is multifaceted.
While the credit risks and capital requirements in Ireland are elevated due to the historic loan experience and loss experience, the level of non-performing loans is higher in Ireland relative to other European countries, which affects the cost of mortgages. I do not know why that is the case but it is a simple and straightforward statement of fact. The higher cost-to-income ratio has also been characterised by the Irish banking sector in recent years and low levels of competition in the Irish banking market compared with other jurisdictions can also have an impact on rates here.
It is important to note that new mortgage lending is running at a strong level. In monetary terms, mortgage lending in the first nine months of 2021 has amounted to €7.2 billion. This is 32% higher than in the same period last year and is now at the highest level of any year since 2008. In the last 13 years we had a much more muted mortgage market and the figures we have this year are higher than any period since 2008, which is good news for many people.
The Minister of State rightly says that this is a small market with unique challenges, particularly in the requirement for retained capital, but we are part of the world’s largest economic block and the Single Market. We see in so many different areas the opportunity and competition that present not just to Irish consumers but also to Irish exporters in terms of goods and services. One area where it is not being felt is in financial services, particularly lending and mortgages. While the declining interest rate is welcome, there is no equity in comparison with the average European mortgage holder. How are we going to utilise our membership of the Common Market over the next decade to give Irish mortgage holders greater choice and competition and cheaper mortgages?
On that issue generally, the European Central Bank, ECB, has a much greater role in overseeing and regulating the Irish banks. As time progresses the ECB will try to equalise all the issues with reserves across the various member states. We have had a historic higher level of defaulting, we had a higher level of people not paying mortgages and we still have a higher level of arrears, relative to other EU countries. As long as that is the case, it will have a knock-on effect on those people who are paying the interest rates. It is a little bit like insurance - if the costs are higher, it will be reflected in the costs to the people who are paying. The banking review that the Minister, Deputy Donohoe, established recently will examine the range of bank and non-bank providers involved in the provision of mortgages in Ireland. It will also assess the impact of competition, consumer choice and protection, and market and regional coverage of any financial area in the country.