'Higher mortgage rates due to low repossessions'
Published 21/06/2016 | 02:30
Mortgage interest rates tend to be higher in an environment where it is tougher to repossess homes, the Economic and Social Research Institute has said.
The ESRI also suggested that fostering greater banking competition would help cut mortgage interest rates - and warned against political intervention.
At the launch of its latest economic commentary, the think tank compared mortgage interest rates in Ireland with those in Germany, Spain, Greece and the eurozone average.
Even after recent decreases, Ireland remains an outlier with the highest mortgage rates.
The lowest are to be found in Spain, where they average around 1.75pc.
Kieran McQuinn, ESRI associate professor, said if it is more difficult for banks to repossess homes over distressed loans, they price this into their credit risk.
"Spain is quite interesting. Spain had a significant housing boom and bust like ourselves and their variable interest rate is one of the lowest across Europe," Mr McQuinn said.
"And one of the reasons offered for this is - and this is somewhat relevant in the Irish case - that it is relatively easier for banks to recover distressed loans in Spain than across other European countries."
The commentary states that Ireland's interest rates are comparable only to Greece's. It adds: "In both cases, Irish rates would appear to be significantly higher than the euro area average and, if anything, the margin or wedge between the two is actually increasing through time."
Mr McQuinn added: "On average, if it is more difficult for banks to repossess properties and repossess distressed loans, they tend to price this in to the credit risk, and this leads to higher interest rates on average, if you're looking at it across countries."
He also said that the State should get rid of its stakes in the banks at a faster rate in order to foster competition and so drive down mortgage rates.