Eugene Murphy (Roscommon-Galway, Fianna Fail)
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177. To ask the Minister for Finance the steps being taken to ensure that all banks pass on the reductions in variable mortgage rates to their mortgage customers; and if he will make a statement on the matter. [9638/17]

Michael Noonan (Limerick City, Fine Gael)
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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 such mortgages. The Programme for a Partnership Government, therefore, sets out a number of important and practical measures which can be taken to improve the position of variable rate mortgage holders.

Firstly, it wishes to promote competition in the supply of mortgage finance. To that end, the Competition and Consumer Protection Commission (CCPC) will 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 to improve the degree of competition and consumer protection.  Pursuant to section 10(3) of the Competition and Consumer Protection Act 2014, the CCPC will undertake an exercise which will involve:-

(i) setting out how competition in the mortgage market operates in terms of interest rates and mortgage approval with a focus on outcomes in comparator jurisdictions;

(ii) setting out what consumers want and expect in a properly functioning mortgage market;

(iii) identifying gaps where competition or consumer protection is inadequate, including a survey of potential new entrants (both traditional and non-traditional) on barriers to entry into the Irish mortgage market;

(iv) outlining of options, including their likely benefits and costs, to reduce the cost of secured mortgage lending and to improve competition and consumer protection in terms of market structure, legislation and regulation.

In liaison with the Central Bank, the CCPC has now commenced this work and this week announced a public consultation to gather all views about the future of the Irish mortgage market. The closing date for submissions is 20 March 2017.  The CCPC will produce a final report outlining their proposals by the end of May 2017. For more information on this please see the following link: www.ccpc.ie/news/2017-02-20-future-irelands-mortgage-market-ccpc-opens-public-consultation.

Secondly, the Government considers that measures to encourage and promote a greater level of switching in the mortgage market would also help boost the level of competition in the market for existing mortgages. In particular, the Programme for Government considers that the development of a code of conduct for switching mortgage provider would be a useful and practical initiative which would have the potential to deliver savings to many existing mortgage holders. To that end, the Central Bank has commenced a programme of research on this topic and the Bank has indicated that the output of this work will be used to inform its consideration of the need for any future work in the area of mortgage switching and specifically around the need for a mortgage switching code. 

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. In Ireland, the mis-pricing 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, prevalence of very low yielding tracker mortgages, and low net interest margins.

It also needs to be noted that the residential mortgage market is evolving and that it now comprises, inter alia, fixed interest rate mortgages, loan to value managed variable rate mortgages, trackers and restructured mortgages of various types.  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.  The provision of clear information to consumers on mortgage products is, therefore, very important.  The Central Bank requires 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.  Also, the Central Bank has recently made changes to better inform and protect variable rate mortgage holders in relation to changes in the mortgage rate. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012 and are effective from 1 February, will require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures will also improve the level of information to be provided to borrowers about other mortgage products their lender provides that could provide savings for the borrower and signpost borrowers to the CCPC's mortgage switching tool. Central Bank research has also showed that there is scope for borrowers to save money by switching mortgages.

In overall terms, the Government is of the opinion that increased competition rather than administrative controls is the best way to ensure that retail lending rates are driven down in a sustainable way for the market as a whole but without giving rise to potentially undesirable consequences for the provision of new mortgage lending.  This is a policy area that the Government will keep under active review in its ongoing engagement with mortgage lenders and in implementing the Programme for Government commitments to help deliver on a long term basis better outcomes for all mortgage borrowers.