DUBLIN, June 15 (Reuters) - A proposed law before Ireland's parliament to hand the national central bank powers to intervene in the mortgage market would likely make it less attractive for badly needed new mortgage providers, the country's competition watchdog said on Thursday.
The bill, proposed by Ireland's main opposition party Fianna Fail to force banks to cut their mortgage rates, passed the initial stage in parliament a year ago despite objections from a minority government that is not large enough to block it.
The legislation is now being scrutinised by a parliamentary committee where it has also been criticised by the central bank, which would be handed the new powers. The European Central Bank and the European Commission have also opposed the bill.
The Competition and Consumer Protection Commission's warning was contained among a set of recommendations in a government-commissioned report on how to develop a more stable market that it described as currently "quite dysfunctional."
"Generally any move by the legislature to intervene and regulate interest rates generates negative perceptions among international funders and raises the possibility of further interventions, which introduces additional risk for funders and makes entry less attractive," it said.
The CCPC said that of the 20 banks, representative bodies and individuals who responded to their consultation, only three - Fianna Fail, the Fair Mortgage Rates Campaign and an individual consumer - were in favour of capping interest rates.
Fianna Fail finance spokesman, Michael McGrath, told national broadcaster RTE that Ireland's finance minister is consulting with the Attorney General on some legal aspects of the bill and he was awaiting feedback before proceeding.
Among its proposals, the CCPC recommended that government be more proactive in boosting the low levels of new entrants, make it far easier for existing customers to switch mortgage provider and look at ways to fund longer-term fixed rate products.
"We would suggest the postponement of additional policy proposals on related issues until these options have been fully considered," it said.
Reporting by Padraic Halpin; Editing by Edmund Blair