Mortgage rates in Ireland are highest in Europe

Irish mortgage holders typically pay €2,500 a year more than their European counterparts because of the premium rates charged by Irish banks, a situation that has been described as “entirely unjustifiable” by Fianna Fáil.

Figures from the Central Bank of Ireland show the average rate charged on new mortgages here over the past 12 months was 3.21 per cent, compared to a euro area average of 1.8 per cent.

The differential works out at about €2,557 a year on a standard €300,000 mortgage, or €63,918 over a 25-year term.

While the so-called “wedge” between rates here and elsewhere has been coming down on foot of increased competition in the marketplace, the latest figures show the gap is still significant.

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Not only did Ireland have the highest average rate of any state in the euro area, it was the only jurisdiction with an average rate above 3 per cent.

Fianna Fáil’s finance spokesman Michael McGrath said: “Mortgage interest rates charged in Ireland are entirely unjustifiable and the banks cannot be allowed to continue to fleece Irish consumers in this way.

“This massive differential is impacting negatively on the quality of life of hundreds of thousands of individuals and families around the country,” he said.

Non-performing loans

Fine Gael MEP Brian Hayes said the high level of non-performing loans on bank balance sheets was also a factor in the differential. Better pricing could be facilitated by a euro-wide resolution to allow cross-border financial services, he said.

The Central Bank’s figures reveal there was a 33 per cent increase in new mortgage agreements in the 12 months to May.

The volume of new mortgages amounted to €681 million in May, bringing such loans to €7.22 billion over the past 12 months.

The figures show that fixed-rate mortgages accounted for 54 per cent of new home loans over the three months to May.

This compared with 80 per cent of new agreements over the same time in the euro zone.

The number of buyers opting for fixed rates here has jumped sharply in recent years. Back in 2014, fixed-rate products accounted for just 10 per cent of Irish home loans.

Improvement

While there had been an improvement in the terms over which fixed rates could be secured, Rachel McGovern of Brokers Ireland, an umbrella group for mortgage brokers, said: "Mortgages across Europe can be secured for periods of 20 years and in some cases for the lifetime of the mortgage, and there is no reason why such mortgages should not be available in Ireland.

The recent decision by Ulster Bank to introduce a 2.3 per cent fixed rate is expected to shake up the market here

“Lenders can fund for such terms so there is no rationale for not offering these better-value products to Irish consumers.”

Since the crash in late 2008, Irish banks have largely failed to pass on lower interest rates to variable rate customers.

The banks have long maintained that the higher rates reflected the elevated risk of lending into the Irish market, but in reality the premium was there to compensate for loss-making tracker portfolios.

The recent decision by Ulster Bank to introduce a 2.3 per cent fixed rate is expected to shake up the market here.

However, the trend towards European norms may be overtaken by an uplift in rates generally as the European Central Bank gears up to end its quantitative easing programme, and prepares to tighten monetary policy across the bloc.