Taoiseach Enda Kenny has indicated that action may be taken against the banks in the next budget if they fail to reduce variable mortgage interest rates.

He told the Dáil that Minister for Finance Michael Noonan had his officials monitoring the progress on what the banks said they would do.

“We have a budget coming up in October,’’ Mr Kenny added. “There are opportunities for the Minister to deal with the banks if that is the case and if that is necessary.’’

The Taoiseach said he expected to see the banks reduce their interest rates. “The Minister has given them a warning and I would expect them to follow up.”

Mr Kenny said he accepted that the current situation was not morally justifiable.

“That is why the Minister for Finance met with each of the six banks and told them a piece of his mind about what they should do.”

He said three banks had introduced measures which would see rates fall below 4 per cent.

Bank deadline

The Taoiseach was replying to Fianna Fáil leader Micheál Martin, who said that yesterday was the deadline for the banks to come back to Mr Noonan on the issue and state what the reductions were.

“The Taoiseach must accept that the Minister’s initiative has been somewhat of a flop, because only two of the six lenders have made minor reductions to their standard variable rate mortgages, and one of them was made before the meeting with the Minister,’’ Mr Martin said.

He said there were more than 300,000 variable rate mortgage customers in the Republic, paying an average of 2 per cent more than the average European customer.

There were also 46,000 mortgage holders who were outside the banking system and who had mortgages with vulture funds, Mr Martin added. They had bought up their loans, and people had absolutely no protection whatsoever.

“This is a massive issue in households throughout the country,’’ he said. “It is about money in people’s pockets.’’

Massive rip-off

Mr Martin called what was happening a massive rip-off. The rates being charged could not be justified, based on evidence from the banks themselves to the Oireachtas committees.

“I put it to the Taoiseach that an existing customer with 20 years remaining on a €200,000 mortgage, at a rate of 4.5 per cent, is paying €992 more than someone availing of a new mortgage, and €3,874 more than someone on a tracker rate.

“These are extraordinary variations,’’ he said.

Mr Kenny said he did not agree that the Minister’s initiative had been a failure. “Today is the first day he set for consideration by the banks.”

The Taoiseach said the Minister had already notified the Central Bank that, if it required legislation to intervene, he would give it the authority. It did not seek that authority, he added.

Some financial institutions had reduced standard variable rates, said Mr Kenny. Others had offered customers reduced fixed-rate options as a method of reducing monthly payments.

In recent weeks, he said, there had been increased competition in the switcher market, which he welcomed.