The Labour Party is to support the passage of a Fianna Fáil Bill on variable mortage interest rates which Minister for Finance Michael Noonan has described as "seriously flawed".

Labour TD Seán Sherlock said it was supporting the proposed measure “in the spirt of the new dispensation that exists in Dáil Eireann” and he noted that the party believed the Bill was worthy of “further discussion at committee stage”.

Fianna Fáil has tabled a Private Members’ Bill on mortgage interest rates that reflects its own policy but also that of Sinn Féin.

The Bill is designed to give the Central Bank new powers that would have the effect of reducing monthly repayments for many of the 300,000 households paying variable interest on their loans.

“The spirit of the Bill is well intentioned in that it seeks to speak for those people who are tied into variable interest rates who bought houses at the top of the market and now find themselves paying over the odds for their mortgages,” Mr Sherlock said.

“There is no point in kicking back this important issue for further legislative scrutiny, it would be better if the bill proceeds to committee stage so that there is an opportunity at least interrogate the constitutional impediments and flaws that Minister Noonan has stated inherent in the Bill.”

Powers

Mr Noonan said the legislation leaves the powers at the discretion of the Governor of the Central Bank, who has insisted he does not want the power.

Speaking on his way to a Cabinet meeting on Tuesday, Mr Noonan said: “If you have a Central bank that doesn’t want the power and it is not mandatory that they should use the power it seems to me to be destined to be a very ineffective piece of legislation that would go on the statue books but would never be used.”

On Monday night Sinn Féin indicated it would support the Central Bank (Variable Rate Mortgages), meaning the net effect is that the minority Government is unlikely to muster the numbers to defeat the Bill.

Mr Noonan said he had Constitutional concerns about aspects of the bill.

He said Fianna Fáil and Sinn Féin share the concern that variable interest rates are higher in Ireland than elsewhere but this was not the right avenue to embark on.

“Legislation is one way but is not the most effective way. I would be very nervous that the idea that there was legislation giving Central Bank these powers would stop new entrants coming into the market.”

Mr Noonan said there was no point imposing the heavy hand of legislation, which he said would not be used by the Central Bank.

Second stage

One clause of the government-formation agreement between Fine Gael and Fianna Fáil is that all Private Members legislation (those sponsored by Opposition parties and groups) approved by the Dáil must be allowed to proceed to second stage (where the published Bill is scrutinised by the Dáil).

The Cabinet will meet this morning to consider its response to the Bill. If it opposes or seeks to amend the legislation, it is likely to suffer its first major defeat in a Dáil vote.

Taoiseach Enda Kenny told party delegates at the weekend that the new Government would not be able to dictate matters in the Dáil and would be frequently defeated on matters not related to confidence or finance.

Minister of State Finian McGrath, of the Independent Alliance, said last night that the group would meet in advance of the Cabinet meeting to decide its position on the Bill. Both Fine Gael and the alliance said they were yet to discuss their response.

Mr McGrath said it was permissible for the alliance to support such motions, if it saw fit.

Fianna Fáil has contended that variable rates for mortgages in Ireland are well above average European rates. It has said a cut of 1 per cent would benefit households by an average of €1,300 per annum.

“The Bill is essentially an effort to force variable mortgage rates closer to the European average,” a spokesman said. “We’re not trying to dictate variable mortgage rates to any individual bank.”

The Minister for Finance Michael Noonan said he would be proposing the bill be sent to a committee for pre-legislative scrutiny and hoped a Dáil debate could take place.