Bernard Durkan (Kildare North, Fine Gael)
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57. To ask the Minister for Finance if and when it might be possible for home borrowers in Ireland to borrow at interest rates equal to those available to borrowers in all other European countries given the severity of the housing shortage in Ireland, the necessity to ensure that home financing is affordable and in line with prevailing conditions in the Single Market; and if he will make a statement on the matter. [9487/22]

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. 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.

Despite this, 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 2.69% in December 2021.

The weighted average interest rate on new fixed rate mortgage agreements stood at 2.59% in December 2021, down from a series high of 4.11% in December 2014. 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 for example 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); and

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

Separately 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 which could provide savings for the borrower and signpost the borrower to the Competition and Consumer Protection Commission's (CCPC) 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 remaining term.

To conclude 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 consider options to further develop the mortgage market.

Gerald Nash (Louth, Labour)
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58. To ask the Minister for Finance his plans to protect current and prospective mortgage holders from a rise in European Central Bank interest rates; his views on the introduction of maximum interest rates that can be contracted to each type of credit agreement as applied in some other European Union countries; and if he will make a statement on the matter. [9485/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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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.

Despite this, it should 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 2.69% in December 2021.

The weighted average interest rate on new fixed rate mortgage agreements stood at 2.59% in December 2021, down from a series high of 4.11% in December 2014. There has also been a reduction in the interest rates charged on loans to SMEs and consumers over the same period.

The Central Bank also 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.

In addition, the Central Bank introduced changes to the Consumer Protection Code 2012 in June 2018 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.

In relation to the introduction of maximum interest rates that can be contracted to each type of credit agreement as applied in some other European Union countries, the Deputy should be aware that the Government intends to introduce shortly a Bill to cap interest rates from providers of moneylending agreements. In addition, the Government's Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021, which is commencing Committee Stage this week, will put an existing APR cap of 23% for consumer lending on a solid statutory basis. This 23% APR cap will also apply to hire-purchase agreements.

Both these Bills, together with the existing interest rate cap on credit union credit, anticipate a draft provision in the European Commission's proposal for a Directive of the European Parliament and of the Council on consumer credits, which was published last June. The provision in question will require Member States to introduce caps on interest rates, annual percentage rate of charge and/or the total cost of credit to the consumer. This would apply to unsecured credit to a consumer up to a maximum of €100,000.

It is also worth noting that 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 consider options to further develop the mortgage market.