Tuesday 19 March 2019

Finance Minister's claims that 'loss-making trackers' one of reasons for high mortgage rates here called into question

Finance Minister Paschal Donohoe. Photo: Frank McGrath
Finance Minister Paschal Donohoe. Photo: Frank McGrath

Charlie Weston Personal Finance Editor

Claims by Finance Minister Paschal Donohoe that "loss-making trackers" were one of the reasons mortgage rates are so high in this country have been called into question.

Mr Donohoe was commenting on a new report from the Department of Finance that looks at why mortgage rates here are second only those in Greece.

The Central Bank has repeatedly found that new borrowers here are charged multiples of the rates imposed in the rest of the Eurozone.

The Department of Finance research says the reason rates are so high is because any bank operating in Ireland has to hold up to three times the amount of capital reserves against mortgages as the European average.

This is due to the massive mortgage arrears crisis since the crash, and the difficulty for banks repossessing homes, according to a Department of Finance report.

But Mr Donohoe also insisted that prevalence of what he referred to as "loss-making" trackers on the books of banks was a key reason mortgage rates have not come down further.

"Irish mortgage rates are higher than the European average for a number of reasons including the fact that more than four in every 10 mortgages in this country are still loss-making trackers."

However, experts said banks were no longer losing money on trackers.

This is despite the key ECB lending rate for banks being at 0pc.

Banking analyst Goodbody Stockbrokers Eamonn Hughes said banks were not making a lot of money on trackers, but were generally not losing on them. He said most banks were probably breaking even on them.

Chief executive of Permanent TSB Jeremy Masding revealed recently the bank’s trackers are yielding 1.1pc, contrary to some claims that banks lose money on trackers.

The Department of Finance report found foreign banks are reluctant to enter the mortgage market here because of stiff regulatory rules on the amount of capital they have to put aside when they issue a home loan.

Mortgage lenders in this market that do not have a banking licence are not required to meet the same criteria on capital provisioning.

These non-bank lenders offer the greatest hope of driving down Irish mortgage rates, the department’s report states. Non-bank lenders include the likes of Finance Ireland and Dilosk, with An Post also expected to enter the home-loans market.

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