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Finance | European Union mortgage rate influences

To ask the Minister for Finance the extent to which he continues to use his influence in the European Union with a view to bringing about mortgage interest charges into line with the average applicable throughout the union; and if he will make a statement on the matter.

To ask the Minister for Finance if the average cost of mortgage borrowing here can be further brought into line with that available in the European Union; and if he will make a statement on the matter.

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.  

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, 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 have fallen from 4.05% in December 2014 to 2.63% in July 2022.   It should also be noted that the average Eurozone new mortgage interest rate has increased in recent months and the differential between the Irish and the Eurozone mortgage interest rate has narrowed from 1.4% at end 2021 to 0.55% at end July 2022. Most new mortgages in Ireland are now fixed rate mortgages and the weighted average interest rate on new fixed rate mortgage agreements stood at 2.50% in July 2022, down from 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.

In addition, Irish mortgages 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.

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 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 may 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 in 2020 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.

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.  I expect that the review will be published before the end of the year.

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