Thursday, 1 April 2021
Department of Finance
Mortgage Interest Rates
64. To ask the Minister for Finance the extent to which it might be possible to bring mortgage interest rates here into line with those applicable throughout Europe; and if he will make a statement on the matter. [17643/21]
71. To ask the Minister for Finance his views on whether house mortgage costs here will fall into par with those available in other EU member states in the Eurozone or outside; and if he will make a statement on the matter. [17650/21]
I propose to take Questions Nos. 64 and 71 together.
I am aware that the general level of interest rates on new mortgage lending in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that certain mortgage rates have been falling. For example, the interest rates on new fixed rate mortgages (excluding renegotiations) have fallen from 4.11% in December 2014 to 2.65% in January 2021.
However, Irish mortgages can have different characteristics from those offered in other countries making the direct comparison of headline rates not fully consistent. For example, many Irish banks include incentives such as cash back offers which reduce the effective Irish mortgage interest rate. Also Irish mortgages are also generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.
Nevertheless, there are a number of important factors which will likely influence the interest rates charged on Irish mortgages such as:-
- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;
- the level of non-performing and restructured loans which is higher in Ireland relative to other European banks;
- there are lower levels of competition in the Irish banking market compared to other jurisdictions.
However, the Central Bank has a range of measures 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; 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 which came into effect in February 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, 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.
The Central Bank also introduced additional changes to the Consumer Protection Code in January 2019 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. Consumers can reduce average pricing in the mortgage market by availing of switching options to ensure that recent and potential future price reductions pass through to the greatest number of customers possible. Indeed the Central Bank advises that a recent study by it estimated that three in every five ‘eligible’ mortgages for principal dwelling homes stand to save over €1,000 within the first year if they switch and €10,000 over the remaining term.
Ultimately, however, the price lenders charge for their loans is a commercial matter for individual lenders. As Minister for Finance I cannot determine the lending policies of individual banks including the interest rates they charge for mortgages and other loans. Nevertheless, I will continue to work with the Central Bank and also engage with lenders to encourage, within a framework which seeks to maintain overall financial stability, greater benefits for borrowers.