Minister for Finance Michael Noonan told the Dáil he was prepared to introduce legislation giving the Central Bank control of variable mortgage interest rates.
He said the rates were determined by the financial institutions as a result of commercial decisions made by them. Equally, the Central Bank had no statutory role in the setting of rates by regulated entities, apart from the cap imposed on the credit union sector. “However, if the Central Bank proposed to me they should get control of the regulation of interest rates, I would legislate for that,” Mr Noonan said.
He said he expected to receive a review of the rates charged by lenders from Central Bank governor Patrick Honohan "in the coming days" and he would then discuss the issue with the six principal mortgage lenders.
The Minister was replying to Fianna Fáil finance spokesman Michael McGrath, who said it was clear now Bank of Ireland, Ulster Bank and a number of other banks were "playing hardball" and would not roll over when called into a meeting in the Department of Finance.
While the AIB reduction was modest, it was a step in the right direction, Mr McGrath added.
He said a 1 per cent across- the-board cut would put about €400 million into the pockets of mortgage holders in 300,000 families around the country. “That would be a very significant boost and stimulus to the domestic economy,” Mr McGrath added.
Mr Noonan said he intended engaging with each bank separately. “I will ask them to justify their margin and explain why what they are doing is different from what the Central Bank analysis suggests. We will proceed from there.”
Ultimately, he added, competition in the marketplace was the best lever to encourage lower interest rates. AIB had started the process and he hoped others would follow.
