Wednesday, 20 May 2020
Department of Finance
Mortgage Interest Rates
95. To ask the Minister for Finance the progress he has made to date with banks here with regard to a significant reduction of interest rates on residential mortgages in view of the fact that they are some of the highest in the eurozone; and if he will make a statement on the matter. [6181/20]
Decisions in relation to mortgage lending are a commercial matter for lenders and are based on a number of factors, including the cost of borrowing. While interest rates in Ireland remain higher than in many other European countries, there has been significant reduction in interest rates on new mortgage lending over the last 4-5 years. For example, the new business interest rate, excluding negotiations, on loans with fixations over one year, was 4.02% at Jan 2015 and is now 2.72%. These are significant reductions that benefit borrowers greatly over loan lifetimes.
A number of important factors determine the interest rates charged on mortgages. These include the fact that the pricing of loans needs to reflect credit risks and capital requirements (which in Ireland are elevated due to historical loss experience), operating costs, structural factors (for example the offering of cashback and other incentives in the Irish market) and weak competition in the domestic mortgage market. However, neither the Central Bank nor I have a statutory role to prescribe the lending, or indeed deposit, rates charged or paid by commercial banks or other commercial lenders.
Nevertheless, the Central Bank has put in place a range of measures in order to protect consumers who are taking out a mortgage. The consumer protection framework requires lenders to be transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle; for example, through protections at the initial marketing/advertising stage, in assessing the affordability and suitability of the mortgage and at a time when borrowers may find themselves in financial difficulties.
In particular, the Central Bank introduced of a number of increased protections for variable rate mortgage holders. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, and became effective in February 2017, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.
Furthermore, the Central Bank also introduced additional changes to the Consumer Protection Code to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. The new and enhanced requirements took effect from January 2019.