Written answers

Tuesday, 25 November 2014

Department of Finance

Mortgage Interest Rates

Photo of Martin HeydonMartin Heydon (Kildare South, Fine Gael)
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200. To ask the Minister for Finance his views on a proposal (details supplied) to help to encourage the banks to pass on variable interest rate reductions to mortgage holders; the other options open to them in this area; and if he will make a statement on the matter. [45126/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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On the issue more generally, the lending institutions in Ireland - including those in which the State has a shareholding - are independent commercial entities. I have no statutory role in relation to regulated financial institutions passing on the European Central Bank interest rate change or in relation to the mortgage interest rates charged.  It is a commercial matter for each institution concerned.  It is not appropriate for me, as Minister for Finance, to comment on or become involved in the details of the accounts of mortgage holders.

The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations.  The Central Bank has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act, 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears.

The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned.  This interest rate is determined taking into account a broad range of factors, including European Central Bank base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding.

As I said in a reply to a Parliamentary Question (45225/14) today, a previous Deputy Governor indicated that, within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds and this is a course of action I expect the Central Bank to continually appraise.

As part of the Central Bank's work on mortgage arrears, lenders were asked to consider all avenues to help customers in arrears, including interest rate reductions. 

With regard to the specific taxation proposal, careful consideration would need to be given to the possibility that charging a higher corporation tax rate in respect of interest income above a certain rate could significantly distort the competitive balance against domestic lenders in favour of lenders operating cross border and not liable to tax in the State.  In addition, practical difficulties around implementation of any such scheme would also have to be carefully considered.

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