Wednesday 21 November 2018

Central Bank accused of misleading buyers over mortgage rates

The Central Bank
The Central Bank
Charlie Weston

Charlie Weston

THE Central Bank has been accused of misleading home buyers after it emerged that new mortgage rates here are among the highest in Europe.

This means first-time buyers are paying up to €2,500 more a year for mortgages than their counterparts in France, Germany, Italy and Holland.

The Central Bank has now admitted that mortgage figures it publishes are far lower than a new buyer can get because it includes any existing mortgages that have been restructured, including thousands of low-priced trackers.

Just over 72,000 residential mortgage accounts have been modified, with around half of these thought to be trackers with rates as low as 1.15pc.

The distorting effect of low-cost trackers has meant that the latest "retail interest rates" statistics from the Central Bank concluded that the average mortgage rate here is 3.15pc for new mortgages.

The Central Bank labels its figures "new loan agreements to households for house purchase".

However, the average variable rate for new borrowers is actually 4.5pc in Ireland.

Brendan Burgess of, who discovered the massive discrepancy, accused the Central Bank of putting out misleading figures that were distorting the situation. He said publishing such low official mortgage rates would discourage new lenders coming into this market, which could provide competition to the main players AIB and Bank of Ireland.

He spent days trying to get clarification from the Central Bank on how it could say average new mortgage rates were much lower than they actually are. He unearthed more detailed figures published by the Finnish Central Bank showing the rates across the 18 eurozone countries.

The highest rate for new mortgages is in Cyprus at 4.4pc, with Germany charging an average of 2.49pc, and France 2.66pc.

"The figures show that on a €200,000 mortgage, a new Irish borrower is paying around €2,500 a year more for a mortgage than elsewhere in the eurozone," Mr Burgess said.

Repayments on a German €200,000 mortgage work at €786 a month. For the same-sized Irish mortgage the cost is €1,000 a month, based on the prevailing variable rate of 4.5pc.

"The Central Bank put out statistics last week saying the new mortgage rate here is 3.15pc. That is completely misleading. It now transpires that they got to that figure by including the thousands of tracker mortgages that are being restructured every month," Mr Burgess said.

"The reality is that mortgage rates here are 2pc higher than the rest of the eurozone."

The Central Bank has rejected claims it is distorting the true cost of a mortgage here.

But it has conceded that it is going to change how it calculates average mortgage rates in Ireland so that the new and renegotiated rates will be separated out.

A spokeswoman said the 'Retail Interest Rates' statistics it publishes are compiled in accordance with the statistical definitions set out by the European Central Bank.

But she admitted: "The new business interest rate series includes 'renegotiated' contracts. This has the effect of increasing the volume of new business above the level of just new mortgages issued, as the primacy of the statistics is to capture the national prevailing interest rate for each instrument category."

There has never been any attempt to hide that fact that the figures include old mortgages that as now counted as new because they have been restructured.

Irish Independent

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