Business Irish

Friday 20 September 2019

Cost of mortgages rises as we pay twice eurozone average in interest

Minister for Finance Michael Noonan
Minister for Finance Michael Noonan

Donal O'Donovan and Colm Kelpie

The cost of a new mortgage in Ireland actually increased in February, as house buyers are being charged interest way above the eurozone average.

The latest Central Bank data shows that the average interest rate charged for a new variable-rate mortgage was 4.2pc in Ireland at the end of February.

This could be as much as double the Eurozone average.

The latest figures will add to the controversy over the high cost of Irish loans for the roughly 300,000 customers with standard variable-rate mortgages.

When the interest rate on restructured home loans is included, the average cost of a new or restructured mortgage falls to 3.38pc. The euro area average was 2.09pc.

The 3.38pc compares with the 2.21pc charged in France, or the 2.32pc average charge in Germany.

The average interest paid by all mortgage borrowers, however, is 2.72pc, a figure that reflects that nearly half of home loans here have a tracker rate.

The interest rate for customers with a tracker home loan is typically little more than 1pc.

The high costs of servicing variable-rate mortgages here has become a hot political issue as pressure is being placed on the Government to ensure the banks reduce the high interest costs.

Finance Minister Michael Noonan met Central Bank governor Patrick Honohan last week to see if pressure can be put on the banks to lower their punitive variable rates.

Mr Noonan asked for a report on the profits being made by banks on variable mortgages.

But the Central Bank has not changed its stance that it does not want powers to regulate interest rates.

It feels such a move would discourage new mortgage entrants into this market

Data published in this newspaper last week also revealed that families on variable-rate mortgages have to work almost three months more than those on trackers just to afford the extra cost of their expensive mortgages.

The gap in costs is so great between variable rates and trackers that a family will need to earn €12,500 a year just to pay the premium being charged on variables.

Fianna Fáil's finance spokesman Michael McGrath said variable rate customers here are getting a raw deal.

"There is no justification for the fact that the rate being charged in Ireland is double the rate elsewhere in the euro area," Mr McGrath said.

"The exorbitant variable interest rates charged in Ireland mean that thousands of families are paying hundreds of euro extra each month in interest payments.

"The truth is that many standard variable-rate customers in Ireland are paying 4.5pc on their mortgage at a time when the cost of funds for the banks is as low as 1pc. Furthermore, it is nothing short of a disgrace that many of the banks have denied their existing variable-rate customers the benefit of the modest rate reductions that were introduced for new customers in recent months."

Mr McGrath said the onus was on the Government and the Central Bank to address the "blatant discrimination against standard variable-rate customers".

Meanwhile, the data comes as the powerful Economic Management Council is due to debate measures to deal with the mortgage arrears crisis.

The council, which includes Taoiseach Enda Kenny, Tánaiste Joan Burton, Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin, is understood to be looking at a range of options, including changes to the personal insolvency rules.

The plan is also expected to include an overhaul of the mortgage-to-rent scheme, allowing those in significant arrears to hand over their house to their creditor and then rent it back.

Irish Independent

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