Ken O'Flynn (Cork North-Central, Independent Ireland Party)
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561. To ask the Minister for Finance to provide an updated assessment of Irish household debt-service ratios after the August cut and current gilt-yield dynamics of a bank (details supplied); his view on spillovers to Irish banks’ funding costs and mortgage rates ahead of Budget 2026. [46612/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Bank of England determines monetary policy and sets official interest rates for the sterling area.

In respect of Ireland and the wider eurozone area, the formulation and implementation of monetary policy and the setting of official eurozone interest rates, is an independent matter for the European Central Bank (ECB). The ECB increased interest rates over the course of 2022 and 2023 as it moved to combat excess price inflation; however, as inflation moved back towards its target range, the ECB has, since the middle of 2024, progressively reduced its main official lending rate to its current level of 2.15%.

While the level of official interest rates will influence the overall level of interest rates in the economy, the determination of retail lending rates is a commercial matter for individual lenders. It is the case that, due to their particular contractual features, the interest rate on most tracker mortgages will automatically adjust in line with changes in the main ECB lending rate. However, in relation to other mortgage types, other economic and business specific factors, such as the cost of wholesale and retail funds, risk levels, operational cost, business plans, market segment and market competition, will also be of relevance.

I am informed by the Central Bank of Ireland that mortgage interest rates in Ireland have declined following the ECB’s easing of monetary policy in June 2024. Up to July 2025, the latest available data, the interest rate on new mortgages originated by the banking sector fell by a weighted average of 0.51%. During this period, the monetary policy rate fell by 2%. Over the same period, the interest rate on new mortgages in the euro area fell by 0.45%. The pass-through of the ECB’s rate cuts to outstanding Irish mortgages has been weaker: outstanding rates fell by around 0.24% on average between June 2024 and July 2025, whilst the figure for the euro area was 0.07%

In relation to the household debt ratio, figures supplied by the Central Bank of Ireland show the aggregate debt service burden of the household sector has remained stable since 2022, with higher loan repayment amounts being offset by rising incomes. Household debt repayments rose from €1.1bn in 2022 Q2 to €1.3bnin 2024 Q2 – an increase of 13%.

Mortgage repayments are the largest component in these totals, though consumer loans account for 40% of repayments due to their short terms and higher interest rates. While debt repayments have clearly increased over this period, household incomes have also risen strongly.

As a result, the debt service ratio for the household sector – the ratio of debt repayments to total disposable income – has remained stable at approximately 9% at 2024 Q2. This follows a period of household deleveraging and a substantial decline in mortgage interest expenses between the global financial crisis and 2022, which resulted in a lower burden of debt repayments relative to incomes.