Written answers

Wednesday, 13 January 2016

Department of Finance

Mortgage Interest Relief Application

Photo of Tom FlemingTom Fleming (Kerry South, Independent)
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242. To ask the Minister for Finance why the banks not only charge variable rate mortgage customers a multiple of the tracker mortgage rate but also charge a multiple of other European variable mortgage rates; if he is unable to change the rate, if he will introduce a tax credit to make up the difference for borrowers; and if he will make a statement on the matter. [1509/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Firstly, I would like to confirm to the Deputy that the lending institutions in Ireland - including those in which the State has a shareholding - are independent commercial entities. I, as Minister for Finance, 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.   

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.

The current interest rates in Ireland are also determined by nationally specific features such as increased credit risk resulting from high levels of non-performing loans and lengthy and uncertain processes of collateral recovery, weak competition, and the constraints on bank profitability arising from legacy issues of the financial crisis, such as an increased regulatory requirement for capital.

Nonetheless, I have taken steps to ensure that the banks provide options for mortgage holders to reduce their monthly repayments. Last May, I requested a report from the Central Bank on the topic which was subsequently published. I also met with the six main mortgage lenders in May and outlined my view that the standard variable rate being charged to Irish customers was too high. The banks agreed to review their rates and products and, by the beginning of July, to have simple options to reduce monthly mortgage payments for SVR customers.  

In September I concluded a series of follow up meetings with these banks and the reality is that the majority have put options in place to allow many borrowers reduce their repayments. These options range from lower variable rates to new suites of variable rates based on loan-to-value and reductions in fixed rates. I therefore encourage borrowers to contact their bank to see what is available to them in their circumstances or consider moving to another bank, where possible, if the offer is not satisfactory. In this regard, the Competition and Consumer Protection Commission (CCPC) website www.consumerhelp.ie is a valuable source of information on the rates charged by various financial institutions. In addition, the CCPC are currently running a mortgage switching campaign and have a mortgage switching tool on their website which should allow borrowers compare rates charged across institutions.  I also note that some lenders offer repayment of legal fees or cash incentives to borrowers switching mortgage provider.

I asked the banks to provide options by which borrowers could reduce their monthly repayments and I believe options have been put in place. Furthermore, I am pleased to see that new initiatives and reductions continue to take place. As recently as last week one bank introduced a 0.5% reduction on managed variable rates for new or switcher mortgages with a loan to value of 80% or less. Another bank reduced its SVR in December. These initiatives illustrate the increasing competitive dynamics in the market.

I note that the Central Bank's statistical release of 11th December 2015 stated that mortgage interest rates generally declined during the third quarter of 2015. Variable Principal Dwelling House (PDH) rates declined by 17 basis points over the second quarter with corresponding Buy-to-Let (BTL) rates falling by 14 basis points during the same period.

The Deputy will be aware that mortgage interest relief has been abolished for homes purchased since 1 January 2013. Up until 2018 however, tax relief continues to be available for interest paid on all qualifying home loans taken out on or after 1 January 2004 and on or before 31 December 2012, regardless of whether the individuals concerned are first-time buyers or non-first-time buyers.

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