Michael McGrath (Cork South Central, Fianna Fail)
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Question 170: To ask the Minister for Finance his views on requesting the six covered banking institutions to adopt a lenient approach to mortgage customers who signed up to fixed rate mortgages and who are not in a position to avail of the reduction in interest rates; and his further views on requesting these institutions to allow such customers to revert to variable mortgages without excessive penalties being imposed. [10918/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy will be aware that Financial Regulator published its Code of Conduct on Mortgage Arrears on 13th February in keeping with the Government's announcement on recapitalisation arrangements. This Code applies only to mortgage lending activities to consumers in respect of their principal residence in the State, by all regulated entities operating in the State. Under the Code, where a borrower is in difficulty, the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until at least six months from when the arrears first arise.

The Deputy will appreciate that a balance must be achieved by Government between influencing private banks through the bank guarantee scheme and other financial support incentives while at the same time being seen to have a hands-off approach to the day to day running of these institutions which must operate on a strictly commercial basis.

The choice of mortgage product ultimately rests with consumers in light of their assessment of the terms and conditions that their lending institution offers. The decision of borrowers is influenced by factors such as their personal preferences and their own assessment of the relative merits of fixed and variable rate mortgages.

Generally mortgages are for long periods. To some consumers a fixed interest rate on a mortgage offers peace of mind in that the borrower benefits from certainty regarding the cost of the mortgage, does not need to be concerned with changes in mortgage interest rates and accordingly, can budget more confidently.

Interest rates charged by banks generally vary in line with the base rate fixed by the European Central Bank from time to time. Where a bank offers a fixed rate over a certain period it incurs additional costs in obtaining fixed or other funding in respect of the loan over the period. The additional costs will reflect both the market view in relation to future trends in interest rates for the period and the fact that longer term deposits generally attract higher interest rates than short term. In addition, where a customer changes from a fixed interest rate contract to a variable rate contract before the end of the term for which the interest rate was fixed, there is an associated cost to the lender. In circumstances that lenders were prohibited from passing on this cost to borrowers switching to variable rates, this cost could increase the price and reduce the availability of fixed rate mortgages.

I have no function in setting interest rates for banks covered by the guarantee scheme and I do not propose to introduce additional requirements.

Michael McGrath (Cork South Central, Fianna Fail)
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Question 171: To ask the Minister for Finance his views on the need for the banks covered by the State guarantee scheme to quickly pass on ECB interest rate reductions in full to mortgage customers; and his views on other institutions passing on such a rate reduction. [10919/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy will be aware that Financial Regulator published its Code of Conduct on Mortgage Arrears on 13th February in keeping with the Government's announcement on recapitalisation arrangements. This Code applies only to mortgage lending activities to consumers in respect of their principal residence in the State, by all regulated entities operating in the State. Under the Code, where a borrower is in difficulty, the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until at least six months from when the arrears first arise.

The decision on whether an institution operating in Ireland passes on ECB interest rate cuts to customers is a commercial decision for the institution concerned. While my Department monitors the impact of changes in mortgage interest rates on the Consumer Price Index (CPI), it has no direct function in relation to the individual institution's decisions on the matter.

The Deputy will be aware that many lenders are conducting extensive advertising campaigns, showing that competition is a real factor on the mortgage scene. The existence of that level of competition in the mortgage lending market is sufficient, I believe, to ensure that credit institutions will reduce their rates where possible in order to remain competitive and retain their share of the market. I understand that in general credit institutions differentiate between mortgages of owner occupiers and residential investors for the purposes of setting mortgage interest rates.

I have been informed by the Financial Regulator that all of the covered institutions have fully passed on each ECB interest rate cut to owner occupiers since the bank guarantee scheme was introduced and that this will be so for the latest ECB cut announced on 5 March 2009. I have also been informed that since the bank guarantee scheme has been in place, on average, cuts in ECB rates have been passed on within one month of the ECB announcement allowing time for adjustments to administrative support systems. I welcome the decision of lenders to pass on ECB interest rates in full to their home mortgage customers.