Tánaiste Joan Burton has called on the banks to make competitive mortgages available to house-buyers.

She said they should return to “normal operational capacities’’ and do what banks should do, which was to offer funding, and reliable sources of funding, to people who had the financial resources and the employment and income structures which would allow them to borrow at a reasonable cost rate.

Ms Burton said the recent move by the AIB to bring back competition to the variable rate market was extremely welcome. "I hope it is a move by the banks towards a more competitive offering on mortgage costs because this is critical for people,'' she added.

Unfortunately, she said, the banks were still in a recovery situation, but she hoped they would now move to more competitive offerings on mortgage charges of all kinds but in particular on interest charges for current borrowers and for those anxious to purchase a family home, of which they were many.

The Tánaiste was replying in the Dáil to Fianna Fail finance spokesman Michael McGrath, who said the interest rates on variable rate mortgages being charged by banks in Ireland were completely unjustifiable.

“A person taking out a new mortgage on a variable rate can be paying anything up to 4.5 per cent compared to a euro area average of 2.5 per cent,’’ he said. “For example, for a person with a mortgage of €200,000, the difference in interest every year is about €4,000, that is over €300 per month being paid by an Irish mortgage-holder compared to a counterpart in another euro-zone country.’’

Mr McGrath said this was completely unacceptable at a time when the cost of funds for the banks was decreasing, the net interest margin was increasing very significantly, and yet the cost of variable rate mortgages was not coming down, except in the welcome case of AIB. He asked if the Government had discussed the matter with the Central Bank.

Ms Burton said she was glad Mr McGrath had mentioned the Central Bank, given that many commentators had remarked on the Fianna Fáil-led government’s actions relating to banking. There had been a “grossly inadequate supervisory model’’ in place at that time, she added.

She said they should be clear as to what they wanted for Ireland. “We want functioning credit institutions which, unfortunately, the deputy’s government destroyed.’’

The banks, Ms Burton added, had been destroyed because of the guarantee. “We set up a series of regulatory structures to ensure that the supervisory authority for banking in Ireland is the Central Bank,’’ she said.