Monday 24 April 2017

Revealed: First-time buyers here paying €2k more a year for mortgages

First-time buyers in this country are paying €2,000 more a year for their mortgages than the equivalent in the rest of the Eurozone.
First-time buyers in this country are paying €2,000 more a year for their mortgages than the equivalent in the rest of the Eurozone.

Charlie Weston Personal Finance Editor

FIRST-time buyers in this country are paying €2,000 more a year for their mortgages than the equivalent in the rest of the Eurozone.

That is because the average variable mortgage rate is almost 2pc higher here than the average in the euro currency area, according to Central Bank figures.

New home buyers are being charged an average borrowing rate of 3.96pc.

The equivalent euro rate is nearly half this at 2.05pc.

On a typical new mortgage for house purchase the difference between the mortgage rates amounts to €2,200 over a year.

The average mortgage amount approved by banks for a house purchases is €191,371, according to Irish Banking and Payments Federation figures.

Monthly repayments on this amount to €998, based on an average variable rate of 3.96pc, and assuming the money is borrowed over 25 years.

The euro equivalent interest rate of 2.05pc would mean monthly repayments of €814, according to the mortgage calculator on the website of the Competition and Consumer Protection Commission.

The monthly difference in repayments is €184, and this amounts to €2,208 over a year.

Despite the huge difference in costs between here and the average across the 19 countries in the Eurozone, the Central Bank said variable rates were down marginally in November.

Six main domestic lenders were twice dragged in before Finance Minister Michael Noonan last year in a bid to persuade them to cut their high variable rates.

AIB and its EBS subsidiary responded with variable rate cuts.

Large numbers of new buyers, and many existing borrowers who are on standard variable rates, have opted to fix their repayments.

Some banks have fixed rates that are now lower than variable rates.

Typical fixed rates for new borrowers are 3.7pc over three to five years. For existing mortgage holders, fixed rate between three and five years are 3.93pc.

Those people on trackers are paying a typical rate of just 1.09pc. Interest rates in the Eurozone are predicted to remain low for years.

Other banks responded by introducing lower fixed rates, and lower variable rates for those with equity built up in their homes.

The rates paid on new savings account are now close to zero, at 0.09pc, the Central Bank’s Retail Interest Rates note states.

Founder of Askaboutmoney.com and accountant Brendan Burgess confirmed the Independent.ie calculations as being correct.

But he said the true extra cost is hidden by the complexity of mortgage calculations.

“The true additional cost is the almost €4,000 extra interest being charged every year.

“Because not only are our Eurozone neighbours paying less each month in actual cash, but more of that cash is going to reduce the capital balance.”

He called on the new Central Bank Governor Philip Lane to review what he said was the Central Bank’s support for the banks’ high mortgage rate policy.

He called on Prof Lane to withdraw the Central Bank’s objection to legal changes to set at limit of 3pc above the ECB rate on mortgage rates.

Online Editors

Promoted articles

Also in Business