Written answers

Tuesday, 12 May 2009

Department of Finance

Financial Services Regulation

8:00 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 168: To ask the Minister for Finance the action he will take to ensure that mortgage lenders pass on European Central Bank interest rate cuts in full to mortgage holders on variable rate mortgages; and if he will make a statement on the matter. [18985/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy will be aware mortgage borrowers with variable rate mortgages have benefited from very significant reductions in mortgage interest rates over recent months in line with the very substantial reductions in ECB interest rates. In respect of the covered institutions my Department has been informed by the Financial Regulator that all of the covered institutions have fully passed on each ECB interest rate cut to variable rate owner occupiers since the Credit Institutions Financial Support scheme was introduced up to and including the ECB cut announced on 2 April 2009.

The decision on pass through of ECB rate reductions to variable rate mortgages is a commercial decision for the financial institution concerned. This decision will reflect a range of different factors including funding costs, market conditions, profitability and business strategy as well as the competitive environment overall. The Deputy will appreciate it is a core function of the Board and senior management of each institution to assess where the appropriate balance lies between these competing objectives particularly in ensuring the financial health and commercial viability of the relevant institution. It is not an appropriate role for the Minister for Finance to seek to determine this decision making by financial institutions operating under competitive market conditions.

As far as the covered institutions are concerned and those participating in the Recapitalisation Programme the objective is to ensure that the credit needs of the real economy including house purchasers are met. In this context, as Minister for Finance I have consistently made a strong case for the full pass- through of ECB interest rate reductions from the relatively high levels they stood at last year. ECB rates are now at very low levels. Moreover, it is important to bear in mind that credit institutions are not primarily funded from the ECB but from a variety of sources and the cost of such funding may not be in line with the very low level of ECB rates.

In view of its statutory consumer protection mandate, the Financial Regulator will continue to monitor the level of mortgage interest rates. It is, of course, important that prospective mortgage borrowers considering a variable rate mortgage at the present time factor in the potential impact on their repayments of changes in financial conditions in the coming years.

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