Paul Connaughton Snr (Galway East, Fine Gael)
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Question 132: To ask the Minister for Finance if he has estimated the impact of a 1% rise in interest rates on personal repayments; and the extent to which this will fall disproportionately on recently formed families. [38844/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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As the Deputy will be aware, there is a broad range of factors that determine the effect of changes in interest rates on individual loan repayments. These include, for example, the outstanding loan amount, whether the lending rate is fixed or variable, the length of time over which the increase takes place, the pass-through of interest rate changes to lending rates, the repayment term and the specific nature of the financial product involved. My Department, having consulted the Central Bank, has concluded that, as detailed information relating to all these factors is not available, an accurate estimate of the figure requested by the Deputy cannot be constructed. In reviewing the broad impact of any projected increases in interest rates on households and businesses, account must also be taken of private sector savings levels as any increase in interest rates will obviously have beneficial effects for savers.

In addition, in assessing the overall financial position of both businesses and consumers following interest rate changes, it is too narrow an approach to consider the level of indebtedness in isolation from the asset side of the private sector's balance sheet. A high proportion of household indebtedness in Ireland relates to borrowing for house purchases which, in turn, creates an asset for the households. In the same way, borrowing by the business sector underpins high investment levels and the creation of business assets yielding future income.

As far as the position of recently formed families is concerned, the Central Bank's recently published financial stability report concludes that fundamental factors such as increasing employment and incomes, low inflation and interest rates have underpinned the pattern of mortgage growth and associated debt levels in the economy. The maintenance of Ireland's strong economic performance and in particular strong income and employment growth provides a positive and supportive economic environment within which households can successfully manage their finances.

In the case of housing loans, mortgage providers are specifically obliged under the Consumer Credit Act 1995 to inform borrowers of the effect on the amount of their repayment instalments of a 1% increase in interest rates in the first year of their mortgages. A number of specific initiatives have been developed to help consumers make informed choices in terms of the financial products they choose, the amount of risk they take on and the cost of financial products. Mortgage lending practices are closely supervised by the Financial Regulator and the Central Bank, which require lenders to conduct appropriate stress testing of borrowers' ability to meet their obligations, not just in the current economically favourable circumstances but also in more challenging times.

It should also be noted that the maintenance of low inflation through the setting of an appropriate level of interest rates for the euro area by the European Central Bank benefits all consumers and preserves the real value of incomes and savings. It is also very important to bear in mind that interest rates remain at very low levels compared with any period of our recent economic history, even following an increase of the order referred to in the Deputy's question. A number of key initiatives announced in budget 2006 will make a significant contribution to improving the financial position of newly formed families.