Finian McGrath (Dublin North Central, Independent)
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Question 152: To ask the Minister for Finance his plans to deal with the situation of fixed rate mortgages and the release fees charged to persons who wish to change to a variable rate mortgage, in view of the fact that the Irish banking system has been saved by these taxpayers; and if he will make a statement on the matter. [42628/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I, as Minister for Finance, have no role in relation to the setting of mortgage interest rates, nor does the Financial Regulator. The pricing of fixed rate mortgages by lending institutions would normally be based on institutions own cost of obtaining fixed rate funding for the period in question plus a margin. The actual cost of funds for each institution cannot be assessed on a mortgage by mortgage basis as they manage the risk on a portfolio basis using several types of wholesale funding and derivatives, depending on the size of each institution and its mortgage book.

Regarding the application of early redemption fees on fixed rate mortgages, when a borrower signs a fixed-rate mortgage contract with a mortgage provider, the lender in turn must in effect borrow the money at an agreed fixed rate. The mortgage lender must repay the money at this agreed rate, so there may be a cost to the institution if the fixed rate agreement is terminated before the agreed term. This gives rise to the redemption fee charged in these cases.

The Financial Regulator carried out a review of this issue earlier this year and submitted a report to my Department and the Oireachtas Committee on Finance and the Public Service. The review focused on the early redemption fees being applied by lenders on fixed rate mortgages and looked at, among other things, actuarial reports examining the formulae applied by the different lenders. The principal findings indicate that: · the early redemption fee calculation in all cases appears to seek to cover the costs; and · lenders do not generally apply additional fees in the case of early redemption. Lenders do not therefore seem to be applying financial penalties in order to dissuade borrowers from early redemption of fixed rate mortgages.

Notwithstanding the findings of the review set out above, I am aware that the Financial Regulator would strongly advise that any borrower who believes that he/she has been charged an excessive early redemption charge should request his/her lending institution to provide a clear explanation of how the cost was calculated. In the event that the borrower is not satisfied with the explanation, a formal complaint should be made to the lender and in the event of an unsatisfactory response, he or she should exercise his/her option to refer the matter to the Financial Services Ombudsman who will independently adjudicate on the matter.