Dominic Hannigan (Meath East, Labour)
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Question 65: To ask the Minister for Finance his plans to address the difference between the variable rate mortgage with Permanent TSB, with an interest rate of 5.44%, and the AIB standard variable rate of 3.04%, and the effect this is having on consumers; and if he will make a statement on the matter. [40941/11]

Michael Noonan (Limerick City, Fine Gael)
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Neither the Central Bank nor the Department of Finance has a statutory function in relation to interest rate decisions made by individual lending institutions at any particular time. However, I can confirm to the Deputy that Permanent TSB did pass on, in full, the recent reductions to customers holding standard variable rate (SVR) mortgages and reduced further their LTV standard variable rates to align them with the SVR. Ultimately the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and board of each bank, having due regard to their customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure.

In his recent letter to the Taoiseach, the Deputy Governor of the Central Bank stated that the Central Bank was not requesting the power to have regulatory control over the setting of retail interest rates. He indicated that the experience of such controls in the past, and in other countries, did not encourage the Central Bank to believe that such a regime would be advantageous in net terms as the banking system recovers its normal functioning. Binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit. This could have an adverse effect on sound competition in the market. The Deputy Governor mentioned also that, within its existing powers and through the use of suasion, the Central Bank will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.

However, the Government is acutely aware of the increasing financial stress that some households are facing arising from difficulty in meeting their loan, and in particular their mortgage, commitments and there are a number of measures in place to assist people in this situation.

In the first instance, the Central Bank's Code of Conduct on Mortgage Arrears (the Code) is the key framework that governs the relationship between lenders and borrowers who are in arrears, or facing arrears, on their mortgage. The Code provides a number of protections to borrowers. These include the establishment of a formal Mortgage Arrears Resolution Process (MARP) to deal with mortgage customers who are in arrears or pre-arrears, the establishment of dedicated Arrears Support Units and a separate internal appeals process by lenders to deal with individuals on a case by case basis. The Code also provides that a lender must not apply to the Courts to commence legal action for the repossession of a borrower's private residence until every reasonable effort has been made to agree an alternative arrangement with the borrower and that, where a borrower co-operates with the lender, the lender must wait at least twelve months from the date the borrower is classified as a MARP case before applying to the Court to commence legal action for repossession of a borrower's primary residence. This twelve month period does not include any time where the borrower is complying with the terms of any alternative arrangement agreed with the lender, or being processed by the internal Appeals Board, or any time during which a complaint against the lender against any aspect of the Mortgage Arrears Code is being processed by the Financial Services Ombudsman's Office.

There are also other public measures in place to assist eligible mortgage holders experiencing difficulty in respect of the mortgage on their primary home such as the Department of Social Protection Mortgage Interest Supplement scheme and the provision of a free, confidential and independent financial advice service from the Money Advice and Budgeting Service.

In addition, the report of the Inter-Departmental Group on Mortgage Arrears, which was published last October, sets out a number of further recommendations to address the situation of significant mortgage difficulty. The report concluded that blanket approaches to tackling the mortgage problem would not be an effective use of scarce State resources and would, in any event, not address the real difficulty which is the level of significant arrears arising in some mortgages. Instead, it stated that the issue of mortgage difficulty can only be addressed in an efficient way on a case by case basis. Arising from the report, a number of developments are underway that will be of further assistance to mortgage holders experiencing significant difficulty. The reform of personal insolvency law was identified in the report as a critical measure to tackle mortgage distress, and considerable work has now been undertaken to prepare a Bill that should be shortly ready for Government consideration. Progress has also been made on preparing the groundwork for mortgage-to-rent schemes as a social housing response to this problem. In addition, the Central Bank has now received mortgage arrears resolution strategies and implementation plans from mortgage lenders and these will now be analysed and considered by the Central Bank. The implementation of the report's recommendations is key to tackling the major problem of significant mortgage distress and a Steering Group, chaired by my Department and including representation at a senior level from the other relevant Departments, has now been established by Government to oversee and drive the implementation of the report's recommendations across the range of relevant Departments.