Bernard Durkan (Kildare North, Fine Gael)
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273. To ask the Minister for Finance the extent to which interest rates charged to home borrowers here are in accord with those applicable throughout Europe having particular regard to the need to ensure that the benefits of the Single Market remain available to all in the European Union; and if he will make a statement on the matter. [62790/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am aware that the general level of new lending interest rates 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 in Ireland.  For example, the interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.73% in October 2021.  There has also been a reduction in the interest rates charged on loans to SMEs and consumers over the same period.

However, Irish mortgage and other loans can have different characteristics from those offered in other countries. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Also Irish mortgages are generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.

There are also a number of important factors which will likely influence the interest rates charged on Irish mortgages. These include operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:

- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;

- the level of non-performing loans which is higher in Ireland relative to other European banks (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks);

- higher cost-to-income ratios which has been a characteristic of the Irish banking sector in recent years;

- lower levels of competition in the Irish banking market compared to other jurisdictions (however, it is noted that non-bank lenders are now playing a greater role in the provision of new mortgage credit and are offering long term fixed rate mortgages at competitive interest rates).

Nevertheless, 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 a number of increased protections for variable rate mortgage holders which came into effect in 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 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 through increased competition pass through to the greatest number of customers possible.  Indeed a Central Bank study 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 remain 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 loans including mortgages. 

Nevertheless, I appreciate that greater sustainable competition in the credit market will be of benefit to consumers and other borrowers.  Accordingly, the review of the retail banking market which is now underway in my Department will consider how the banking system can best support economic activity, assess competition and consumer choice in the market for banking services and look at options to further develop the mortgage market.