Pearse Doherty (Donegal, Sinn Fein)
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144. To ask the Minister for Finance if the Central Bank intends to carry out any public consultation on the issue of high standard variable rates on mortgages; and if he will make a statement on the matter. [14685/16]

Michael Noonan (Limerick City, Fine Gael)
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The Central Bank has informed me that it does not have a statutory role to prescribe the rates that mortgage lenders charge on their loans and have expressed reservations previously on being granted such powers. Accordingly, the Central Bank does not intend carrying out any such public consultation as mentioned in the Deputy's question.

The Central Bank contend that a healthy commercial banking system that is in a position to provide finance to customers and is resilient to economic and financial market shocks, needs to be able to generate sustainable profits over the long term - for example, sufficient profit levels to absorb credit losses over the credit cycle while still generating capital.  The Central Bank believe that in Ireland, the mispricing of risks in historical lending continues to be a significant contributor to weak profitability, as evidenced  by the continued high level of non-performing loans (23% as at 31 December 2015), prevalence of very low  yielding tracker mortgages (50% of the value of all outstanding mortgage loans in Ireland), and low net interest margins.

Further, the Central Bank has pointed out that the residential mortgage market comprises, inter alia, fixed interest rate, loan to value managed variable rate mortgages, trackers, restructured mortgages of various types, etc. Therefore, the residential mortgage  market cannot be assessed by only looking at standard variable rate mortgages, and any assessment, would need to consider the large number of different factors that influence interest rate pricing. 

These legacy issues, together with other input costs to variable rate mortgage pricing were outlined in a paper which the Central Bank provided to me in May 2015. In this paper the Bank outlined that these include higher costs from credit losses; higher funding costs; higher levels of capital resulting from regulatory changes; higher required capital per euro of risk given the severe loss experience in the crisis; higher operating cost per euro of loans given falling balance sheets and the fixed cost base that comes with the infrastructure requirements of large retail banks.

The Central Bank has informed me that it does require that all mortgages are advertised and sold in accordance with the requirements of financial services legislation (including Central Bank Codes), and that consumers who choose a given mortgage product (or to switch to a new product) are treated in accordance with these requirements in the context of the product they have chosen. The related Central Bank work is evidenced most recently by the commencement of its examination of tracker related issues.

I have been advised by the Central Bank that it is also currently in the final stages of considering responses to a public consultation on a number of measures to increase the level of transparency of variable rate mortgages of the nature referenced in the question and, thereby, facilitating consumer choices (see "Protections for Variable Rate Mortgage Holders" (CP98) which is available at: www.centralbank.ie/regulation/poldocs/consultation-papers/Documents/CP98/CP98%20Consultation%20on%20Increased%20Protections%20for%20Variable%20Rate%20Mortgage%20Holders.pdf).

Finally, the Central Bank has carried out research, which showed the scope for borrowers to save money by switching mortgages and the Competition and Consumer Protection Commission has launched a mortgage switching tool for consumers to compare rates charged across institutions.  The Central Bank has advised that it plans further research on switching in 2016.

In the present environment, where we are seeing lenders reduce rates and introduce offers specifically targeted at the switcher market, I have encouraged 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.