Irish mortgage rates drop but remain higher than the European average

By January 4, 2017Articles
The Central Bank of Ireland recenetly published data showing that mortgage rates in Ireland had dropped slightly in September 2016. However, these figures still stand out at being twice more than the European average.

Lower interest rate

Interest rates on new mortgages for September showed a small drop to 3.43 percent, which is now down almost 24 points on the year-to-year trend. But those rates are still high in comparison to the European average, which currently fluctuates at just 1.78 percent.

The variable rate mortgages, which account for over two-thirds of the total new mortgages for the year, stood at 3.41 percent throughout September. And the share of fixed rate mortgages for owner-occupiers remained at around one-third of all new mortgages, despite a decline in new drawdowns throughout 2016. Central Bank stated that the rate for 1-3 year fixed-rate mortgages had fallen 27 points through the year to the third quarter.

The Buy-to-Let market remains unstable

In the Buy-to-let (BTL) market, the rates for new loans dropped by 20 points in the third quarter of the year. But that was offset by an increase in fixed-rate BTL mortgages by 43 points. Fixed rate BTL rates rose to 4.84 percent.

Variable rate BTL mortgages account for over 90 percent of the new loans for the third quarter period, giving rise to the 20 point decline in rates. Fixed rate BTL new loans have dropped in volume to less than 10 percent over the year to the third quarter.

Higher deposits for European counterparts 

The Central Bank also reported that the interest rates on term deposits for new buyers had stayed steady at 0.15 percent in September. Rates on term deposits have declined by 6 points over the past 12 months. Meanwhile, the European counterparts witnessed a bigger decline of 18 points for the same period. However, they are still more than three times higher at 0.53 percent.

More Legislation Needed

With the still high Irish mortgage rates, homeowners are paying almost €250 more per month than their European counterparts. Michael McGrath, spokesperson for Irish political party Fianna Fáil, said there needed to be a change in the legislation.

“These figures again underline the need for legislation to deal with the excessive variable interest rates to Irish mortgage-holders,” he said. “We have seen some progress on variable rates but the rates are still way out of line with the cost of funds to the banks.”

Mr McGrath is hoping that the government can make it law to put better control mortgage rates by early in 2017. The bill for rate capping has already passed the second stage of the legislation process, and Fianna Fáil are pushing for the committee stage to be completed as quickly as possible.

The Central Bank’s reticence

Central Bank governor, Philip Lane, said that the idea of capping interest rates was “a very crude instrument which has many downsides”. He went on to state that it does not treat the underlying facts of the high interest rates, and is merely looking at the symptoms. Mr Lane stated that the Central Bank would abide by any decision of law.

The greatly reduced number of home repossessions in 2016 has been cited as the main reason for the high interest rates, with more mortgages being renegotiated instead.

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