Bernard Durkan (Kildare North, Fine Gael)
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92. To ask the Minister for Finance his views on whether the banks here are justified in charging higher mortgage interest rates than throughout the rest of Europe, given that taxpayers here are instrumental in bailing out the lending institutions; and if he will make a statement on the matter. [28002/16]

Michael Noonan (Limerick City, Fine Gael)
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A healthy and commercially sustainable banking system that is in a position to provide mortgage and other credit to customers while also being resilient to economic and financial market shocks is important for Ireland's economy.

In relation to the market for residential mortgage credit, it should also be borne in mind that this market has a number of diverse aspects and comprises, inter alia, fixed interest rate loans, loan to value managed variable rate mortgages, trackers and restructured mortgages of various types. Therefore, the residential mortgage market cannot be assessed solely by looking at standard variable rate mortgages and any overall assessment of mortgage rates would need to consider the large number of different factors that influence interest rate pricing for different aspects of the overall mortgage market. Nevertheless, as the Deputy is aware, the issue of standard variable mortgage rates is a significant one for this Government and it has made it clear that it is not acceptable for lenders to charge excessive rates on residential mortgages.

On my request the Central Bank produced a report on this issue entitled, 'Influences on Standard Variable Mortgage Pricing in Ireland'. You will find this report available at the following link: . This research identified three main reasons for higher mortgage interest rates in Ireland. Firstly, the pricing of loans needs to reflect credit risks. In Ireland these risks are elevated due to high levels of non-performing loans and the lengthy and uncertain process around collateral recovery. Second, competition is weak. This is not unrelated to credit risks since high credit risk deters new players from entering the market. Third, bank profitability is still constrained by legacy issues. As indicated, profitability is essential to ensure banks build up adequate capital buffers to meet increasing regulatory requirements and to withstand future adverse shocks and thereby make a positive contribution to the overall economy.

As the Deputy will be aware, I had a series of formal meetings with the main mortgage lenders last year where I outlined the Government's opinion that the standard variable rate being charged, to both existing and new Irish mortgage customers, was too high. The banks have since reviewed their rates and subsequently reduced them which has been evidenced in the latest Central Bank statistical release on retail interest rates for July 2016. Nevertheless, this is a policy area that the Government will keep under active review in our ongoing engagement with mortgage lenders and in implementing the Programme for Government.

The Government is of the opinion that real competition among lenders is the best way to ensure that retail lending rates are driven down in a sustainable way for the market as a whole without giving rise to potentially unforeseen and undesirable consequences for new mortgage lending. In line with this general approach, the Programme for a Partnership Government indicates that the Government will take all necessary action to tackle high variable interest rates including through establishing a new code of conduct for switching mortgage provider to be administered by the Central Bank of Ireland and also requesting the Competition and Consumer Protection Commission to work with the Central Bank to set out options for Government in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and improve the degree of competition and consumer protection. Therefore, the primary policy approach of this Government in this area is to develop an overall banking policy that encourages more entrants and a vibrant banking sector with real competition in order to provide more choice to mortgage holders. In this context, the Deputy will be aware that 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 which itself notes the findings of the Central Bank research of cases were borrowers could make savings.