Dáil Éireann Debate, Thursday - 18 December 2025
171. Deputy Cian O'Callaghan asked the Tánaiste and Minister for Finance the action he is taking to address the banking sector using high mortgage interest rates in order to maintain high profits; and if he will make a statement on the matter. [73718/25]
View answer172. Deputy Pearse Doherty asked the Tánaiste and Minister for Finance the steps being taken to address the situation where banks are maintaining high mortgage interest rates in order to maintain high profits; and if he will make a statement on the matter. [73721/25]
View answerThere is a significant problem with Irish banks charging very high interest rates to mortgage holders, especially in comparison with UK banks and the spreads in the UK, while at the same garnering record profits. What is the Tánaiste doing about this? Cad atá ar siúl?
The European Central Bank, as we know, is responsible for monetary policy in the euro area. Having declined in stages over the past 18 months, its main lending rate is now 2.15%. While changes in the level of official interest rates will feed through to the wider economy it does not have a uniform impact on the level of retail interest rates. In a market economy, the determination of retail and business lending rates is a commercial matter for individual creditors. The most recent Central Bank data shows the weighted average interest rate on new mortgages was 3.56% in October. While this is above the euro area average of 3.33%, the percentage is almost 0.5% lower than the same time last year. It is factually correct that we are above the euro but we are not the highest in the EU.
In the most recent budget, the Government maintained the mortgage interest tax credit at the current level for a further year and at a reduced level of relief for the following year. This will assist borrowers who have seen large interest rate increases to offset the impact of the rising cost of living. It introduced mortgage interest relief for homeowners with an outstanding mortgage balance on their primary dwelling house of between €80,000 and €500,000 as of 31 December 2022. This relief was extended in budget 2025 and again in the most recent budget for 2026.
The Central Bank, through its regulatory framework, offers protection for consumers and requires that all regulated entities, including banks, retail credit firms and credit servicing firms, are transparent and fair in all their dealings with borrowers. The revised and strengthened consumer protection code will come into effect next March and will set out requirements for enhanced disclosure on mortgage switching options and the impact of incentives on the overall cost of credit of a mortgage. The banking industry has adopted an aligned industry-wide set of initial eligibility criteria to facilitate the switching of mortgages from non-banks to banks and has introduced a website, bpfi.ie/in-your-interest, to assist the mortgage switching process. Domestic banks currently maintain healthy balance sheets, which are also important to ensure they are well positioned in case of adverse shocks. While the profitability of the domestic banking sector is high, it is noted that it has moderated from recent highs.
Irish banks are making huge profits from charging high interest rates on mortgages. Research by RBC Capital Markets shows that Irish banks are making more than three times as much on mortgages as UK banks by charging higher interest rates. It is the last thing people who are struggling to buy a home need. At the same time, profit levels in Irish banks are at a record high. AIB and Bank of Ireland last year made a combined profit of almost €5 billion and these same banks paid virtually no taxes on these profits. Does the Tánaiste think it is acceptable that Irish banks are making huge profits off the backs of mortgage holders? Does he see that there is a serious problem? Will he do anything to end this rip-off?
I have raised this issue with the Tánaiste over and over again. It is clear that people are being ripped off. I wonder whether that is the assessment of the Tánaiste, as Minister for Finance, or does he think it is okay that banks make €5 billion in profits and charge higher interest rates than the average in the EU. That is where they are making their money. It is not due to huge innovations. It is because of the European Central Bank, ECB, interest rate in the main that these banks are making the profits they are making. This means a lot to families. Percentages relating to large mortgages - and I spoke earlier about the runaway house prices and people being forced into huge mortgages - mean thousands of euro each year. We cannot have a Minister who is simply impotent in this regard. On the one hand, the Government is getting rid of the pay caps for the CEO and selling off the stakes while, on the other hand, customers are basically abandoned. Is there anything the Minister plans to do to ensure banks pass on reduced interest rates to their customers instead of gouging them?
The more competition in the banking sector and the ability to have competition across the EU is how we can help in a sustained and policy proactive way. A number of discussions that are taking place at a European level about completing the single market in relation to that is good. Making sure this is an attractive location in which to operate banks and financial services is also important and important to consumers, including the people the Deputies mentioned. It is important, though, when we have this conversation to recognise that we are having it at a time when the weighted average interest rate on new mortgages is falling. It is 0.5 % lower than it was at the same time last year. The Deputies are right that these are real figures and have real impacts on people. The latest data from the Central Bank, which publishes quarterly data on interest rates on outstanding mortgages, is from September of this year and indicates that the average interest rate on outstanding mortgages held by banks was 3.44%, down from 3.6% a year earlier. For the overall non-bank sector the weighted average was 3.78%, down from 4.39% a year earlier and for those entities in the non-bank sector, which do not engage in new lending, the weighted average was 3.91%, down almost 1.5% from 5.32% a year earlier. The Central Bank has indicated that Irish banks operate at a healthy profit level, but that gap with the EU average has narrowed more recently.
Domestic banks currently maintain healthy balance sheets. We need them to do so in order that they are well positioned to absorb potential credit losses in case of adverse shocks. We know what it was like when the banking sector collapsed in the past and the pain that caused. As announced in the recent budget, the revised form of a bank levy was further extended. Extending the bank levy in increments of one year at a time ensures the form, scope and revenue target of the levy can be assessed and calibrated on an annual basis in a manner that accounts for various factors, including the level of profitability of the sector from year to year and the performance of the liable institutions relative to one another and that is also a tool at our disposal.
Of course interest rates have fallen in the past year. The European interest rates have fallen. Why on earth would they not? The issue is that we have record bank profits and Irish mortgage holders are being over-charged in interest rates compared with other countries. I gave the example of the UK. The spreads in Ireland are more than three times higher than those in the UK. Does the Tánaiste find that acceptable? Is he going to do anything about it? He is simply talking about more banking competition. That has been said by Ministers for Finance in this Chamber over many years, but we are in the situation that people are being ripped off now. Is the Tánaiste going to do something about it or does he find it acceptable?
Deputy O'Callaghan made the point. To tell us that interests have dropped 0.2% in a year on weighted average, when the ECB has reduced interest rates seven or eight times in the past 16 months, is a nonsense argument.
It is not. They reduced.
It is a nonsense argument. The banks should be reducing their interest rates beyond the rate they are offering at this time. The ECB has given them the flexibility to do that by reducing the rate. I am not expecting them to be passed on percentage by percentage, but there is no doubt that Irish banks are creaming it off the backs of mortgage holders and the Tánaiste is doing nothing about it. His predecessor did nothing about it, and the Tánaiste's response here is that he will not do anything about it. All he is saying to the public is that he is looking for competition, that we have to get another bank. What will he actually do about AIB and Bank of Ireland making a €5 billion profit when everyone in this Chamber knows it is being made as a result of high interest rates that should not be charged to Irish consumers. Consumers and families are being forced to take out mortgages at huge rates because of Government policies.
If the Deputies want to have a direct link between every loan facility and the ECB interest rate, they have to be willing to say they want it for deposits as well. That will not be good either for many Irish businesses or families. There has to be a context to this conversation because people are watching at home and it is presented to them as though interest rates are way out of kilter with the European average. The point I am making with the evidence I put on the record of the House, which is available for all to read from the ECB and the Central Bank of Ireland, is that the gap is now narrowing.
I have heard it said for years that Irish mortgage holders pay the highest mortgage interest rates in the European Union. That is not true. We pay a little above the European average. That has real impacts on people in their bills, that is absolutely right. However, it was 3.56% in October and the European average was 3.3%. It is, therefore, absolutely prudent and sensible to say we should continue to look at what we can do at a European level.
I was at meetings as recently as last week about what we can do at a European level to complete the single market and make sure there are more opportunities for Ireland, which is a small country from the point of view of population, to be able to avail of banking services across the European Union and to attract banks in. It is not just talk. We saw yesterday the benefit of a new banking organisation entering the Irish economy. We have kept the banking levy, which is a tool at our disposal and it is reviewed each year in advance of the budget.
