The Finance Minister Michael Noonan says banks have agreed to start lowering their variable mortgage interest rates from July.

Mr Noonan says banks who do not lower their rates could face a levy in the next budget.

His announcement says the potential new mortgage products will include lower rates for both existing and new customers.

He also says he has stressed the need for banks to be more competitive with each other - and he has warned that he will consider punishing banks with a levy in the next budget if they do not cooperate to lower rates.

His statement came alongside the release of a report from the Central Bank - which reported that the average interest rate on new mortgages in Ireland is 3.6%, compared to 2.5% in selected other European countries.

It says banks must deal fairly with customers in terms of the rates they charge - pointing out that the cuts to ECB rates have not been passed onto customers, partly because there is so little competition in the market.

But it also notes that the banks are only beginning to return to profitability - in part because they need higher rates on variable mortgages to make up for their losses on trackers.