Capping interest rate on mortgages will kill competition - Noonan
New laws capping the interest that banks charge on home loans will mean competitors will hold off on entering the Irish mortgage market, potentially hurting competition, Finance Minister Michael Noonan has claimed.
But with political pressure continuing to mount, the minister said he expects State-owned AIB to cut its rates again, and will call in other lenders to hear their plans - repeating a process that took place when a similar row erupted last year.
The interest on a standard variable rate home loan in Ireland is double the eurozone average, and is the highest across the single currency.
However, Mr Noonan said that legislation proposed by Fianna Fáil, which has already passed the first stage in the Dáil thanks to the minority Government's weak position, may be unconstitutional.
He said it remains "an awful long way from enactment".
Mr Noonan made the comments to reporters at an international banking conference in Dublin, where the minister and Central Bank Governor Philip Lane were among the key-note speakers.
At the same event, Mr Lane confirmed for the first time that his bank will work with Fianna Fáil's proposal giving it powers to cap mortgage costs, if the new law comes into force.
The Central Bank is known to be opposed to the law.
"We don't think having legislative caps is the best way to ensure competition," Mr Lane told reporters.
"[But] we will work not just to the spirit but to the letter of every law that comes in."
However, Mr Noonan said there are a number of hurdles to clear before the bill becomes law, and that it may be unconstitutional.
The constitutional issues include possible interference with the property rights of bank shareholders, the new law's lack of an appeal mechanism and the fact that it would apply retrospectively.
The new legislation will also have to be considered by the European Central Bank in Frankfurt, he said.
He said he hoped AIB would follow last week's rate cut with another reduction "fairly soon".
"As AIB becomes more profitable and as the cost of funding remains very low, I think there is the possibility of a further cut," he said.
"I intend having further talks with all the banks to establish their intentions," he said.
The minister said that the prospect of an outsider entering the Irish market, seen as a potential game-changer for prices, could be hampered by the current controversy. "I think there'll be a tendency now [for new players] to hold back until we see what happens with this legislation," he said.
In his speech to around 1,000 international bankers at the same conference, Mr Noonan moved to assure them the Government had no plan to hurt banks. "There is nothing in the new Programme for Government that should worry our local banks," he told the audience.
The Government plans to exit its stakes in the bailed-out banks over time, he said, insisting that a commitment not to sell more than 25pc of any one bank would not "inhibit our freedom of movement in any way".