Thursday, 6 July 2023
Nithe i dtosach suíonna - Commencement Matters
Mortgage Interest Rates
I thank the Minister of State for stepping in to take this Commencement matter. I raise the mortgage interest rate increases which have been ongoing for the best part of a year. There have been several hikes in mortgage interest rates since last year. Last week AIB announced it was increasing its fixed rate by up to 0.7% and its standard variable rate by up to 0.65%. First-time buyers are already struggling to meet the criteria for mortgage approval and these hikes will make it impossible for many of them to do so. During a cost-of-living crisis mortgage holders on variable interest rates or those whose mortgages are with vulture funds are finding their mortgage repayments soaring to the point where they are paying well beyond their means. Repayments are rising by thousands of euro a year. Some are paying interest rates of up to 8%. All this is while banks profit by paying little or no interest on deposits. The Money Advice & Budgeting Service has said “the interest rate hikes serve as a particularly alarming trend during a cost-of-living crisis and are having disastrous effects” while the Free Legal Advice Centre, FLAC, has warned that spikes in the cost of living and interest rates threaten an increase in new arrears cases. I know, from people contacting me, that those new arrears cases are significantly increasing at the moment.
I will give just one example of what is happening to an average mortgage, from a Limerick perspective. Since last September, it has increased for one particular couple by €360 a month. The average wage in the country this year is €44,000, which breaks down to a gross monthly salary of €3,683. Right now, that family is paying €4,300 more than this time last year, so it has wiped out a month’s salary and a good chunk of the following month’s salary as well, and it is going to get worse because we are expecting further interest-rate rises which will be passed on again to hard-pressed mortgage holders. You could easily have a situation where by the end of this year, people are losing up to two months of their annual salary with the increased charges they have to pay on their mortgages.
Sinn Féin thinks this is entirely unacceptable. My party colleagues in the Dáil proposed a temporary and targeted mortgage interest relief back in May. The proposal sought to absorb 30% of the increased interest costs facing mortgage borrowers with a maximum relief of €1,500, operating for eight months from May this year to the end of 2023. It was a viable and sensible approach to help people caught up in this situation but the Government parties, including the Green Party, voted it down even though the State is expected to run a surplus in excess of €10 billion this year.
I was very disappointed to see Limerick representatives, Deputies Leddin and O’Donnell, vote against the Sinn Féin proposal to help mortgage holders while Deputy Willie O’Dea was not present for the vote. People all over Limerick are contacting their local representatives looking for help and some answers. Why has the Government taken the decision to leave these struggling mortgage holders waiting until October before it decides if it will come up with some kind of relief?They are struggling now. They have been struggling for months. What answers does the Minister of State have for the woman I mentioned today, and the thousands like her?
At the outset, it is important to point out that the setting of official interest rates throughout the eurozone is a matter for the European Central Bank, ECB. The ECB recently announced a further 0.25% increase in interest rates, bringing its main lending rate to 4%. The Government has no role in setting official interest rates, nor in setting the retail interest rates that lenders may charge on their loans, including mortgages. The rates charged are a commercial matter for individual lenders and these are usually based on a range of factors including, but not limited to, the ECB rates. The most recent Central Bank interest rate statistics shows the weighted average interest rate on new mortgages charged by credit institutions in Ireland was 3.63% in April 2023. In the context of the rates charged by different types of entities, in relation to outstanding mortgages, at the end of March 2023 the average interest rate charged by banks was 3.20%, and by non-bank regulated entities it was 3.79%. In relation to the non-banks, the Central Bank has broken these down further to distinguish between lending non-banks who provide new mortgages, and non-lending non-banks, NLNBs, which service existing loans but do not provide new mortgages. The Central Bank indicated that the weighted average interest rate on variable rate mortgages charged by the former was 3.73%, and 5.36% by the latter. The Central Bank published further data on 8 June 2023 indicating that the dispersal of interest rates by the NLNBs was much greater than that of either the banks or the lending non-banks. This means that the NLNBs had a greater number of mortgages at both higher and lower interest rates, that is, as at end March 2023 about 12% of their mortgages had an interest rate of 1% or lower, whereas another 26% of their mortgages were at an interest rate of over 5%. By contrast, the interest rates on most of the mortgages held by both banks and lending non-banks were between 2% and 5%. The Central Bank indicated that this reflects two main factors, including the huge amount of variable and tracker mortgages held by the NLNBs. At the lower end of the interest rate distribution, the key focus of these entities on non-performing loans revealed a large cohort of accounts on zero interest rates.
Nevertheless, the Government appreciates the additional pressure recent interest rate increases have had on many people. The consumer protection framework seeks to ensure that all Central Bank regulated entities are transparent and fair in all their dealings with borrowers, and that borrowers are protected from the beginning to the end of the mortgage life cycle. The framework applies to all Central Bank regulated entities that provide mortgage or other credit to consumers. Where a loan is sold or assigned to another entity, the relevant borrowers maintain the same regulatory protections that they had when the loan was originally made, including under the various Central Bank statutory codes of conduct such as the Consumer Protection Code and the Code of Conduct on Mortgage Arrears, CCMA. In particular, the CCMA provides specific protections for borrowers in arrears or facing a prospect of arrears on a loan secured on a primary residence. All relevant regulated entities must proactively encourage borrowers to engage with them about financial difficulties that may prevent the borrower from meeting his or her mortgage repayments. Where a borrower is experiencing repayment difficulty, a regulated entity must explore all of the options for an alternative repayment arrangement, ARA, offered by the entity to determine if a more suitable and sustainable repayment option is available based on the borrower’s individual circumstances. If a borrower is not satisfied with the options proposed or if the regulated entity declines to offer an ARA, an appeals mechanism is provided for in the CCMA. In addition, a regulated entity must review an ARA at intervals that are appropriate to the type and duration of the arrangement, including at least 30 calendar days in advance of an ARA coming to an end.
The Central Bank has advised that it expects all regulated entities to take a consumer-focused approach in respect of any decision that affects their customers. In particular, it indicates that the protection of mortgage loan borrowers, including those in arrears, is a key priority, and that it will continue to supervise compliance by all regulated entities with the CCMA, Consumer Protection Code and other relevant financial services legislation. I encourage anyone who is experiencing a repayment difficulty, or who has any other genuine concern in relation to their mortgage, to contact their mortgage creditor to discuss the matter in the first instance. It is imperative that Central Bank regulated entities constructively engage with their borrowers to address any legitimate concern raised and to act fairly in the interest of their customers. That is what they are required to do under the Central Bank consumer protection framework, and it is the minimum standard that Central Bank-regulated firms are expected to comply with.
I have to say that I have rarely had a more depressing response from a Minister. I appreciate it is one that has been handed to the Minister of State by the Minister for Finance. In a situation where tens of thousands of hard-pressed mortgage holders are struggling to pay the interest each month are being charged between €4,500 and €6,000 more a year, the Minister of State has given no indication whatsoever of any intention of this Government to address the issue. The only advice he has given, after all of those words, is that people should talk to their mortgage creditors. The families I am speaking to tell me they do not go out anymore. They are struggling. That is on top of the electricity bills that have shot up this year and all the other costs they have to pay, including the property tax that delivers no services in Limerick. The Government's answer is to tell people to talk to their mortgage creditors. When is this Government going to wake up and understand how badly hit mortgage holders are, and do something for them? Sinn Féin's proposals would have tackled this issue. I urge the Minister of State, in the minute he has to respond further, to indicate that his Government will do something meaningful for mortgage holders in Ireland today.
I am acutely aware that there have been increases in certain mortgage rates by some lenders. It is important to point out that mortgage interest rates and, in particular, fixed interest rates have fallen over the past number of years. For example, in December 2014 the average level of fixed interest rate for new lending was 4.11%. That compares with 3.54% in April 2023. In April, mortgage rates in Ireland were among the lowest in the eurozone. Recent Central Bank data indicate that a significant portion of new mortgages, or 89%, are now fixed rate mortgages. These fixed rates will protect borrowers in the event of a rise in official and market interest rates, at least for the period that the interest rate is fixed.
I also emphasise that all regulated entities are legally required to follow the statutory Central Bank codes of conduct. Failure to follow the codes can result in the Central Bank using its range of powers, including administrative sanctions, procedures or legal action where appropriate. A consumer has recourse to the Financial Service and Pension Ombudsman, FSPO. If a consumer is not satisfied with how a regulated firm is dealing with him or her in relation to the handling of his or her mortgage, he or she can make a complaint directly to the regulated firm. If the consumer is still not satisfied with the response from the regulated firm, he or she can refer the complaint to the FSPO, which is the independent statutory office provided for in law to adjudicate on complaints a consumer has with a regulated financial services provider.