Central Bank will not seek power to set mortgage rates

The Central Bank has said it has no power to set mortgage rates for banks and won’t seek such power as it would curtail competition in the market.

At a press conference on Wednesday, Central Bank chief economist Gabriel Fagan attributed the high cost of home-loans to the lack of competition in the Irish market.

Asked whether the Central Bank could bring any influence to bear on the banks, Mr Gabriel cited remarks by bank governor Patrick Honohan at an Oireachtas committee last November.

“He made essentially three points: One was that the level of mortgage rates in Ireland could – and do indeed – seem to reflect some lack of competition in the market,” Mr Fagan told reporters.

“And if you deem that the rates are too high then an appropriate way of acting is to try and see to what extent one can increase competition.

He continued: “With regard to the specific question of the powers of the Central Bank, he was very clear and very explicit that on the basis of the current legislation the Central Bank has no powers to control mortgage interest rates. These are matters for the banks, so that was clear.

“And he also said in addition that it would be undesirable for the Central Bank to actually have those powers because it would (a) be an interference in the proper function of marketing. But, more fundamentally, it would possibly deter new entrants from coming into the market.

“So if we say that the problem is a lack of competition, the last thing you would want to do would be to deter companies from entering into the market by introducing such legislation.”