Tuesday 15 October 2019

Minister blames 'loss-making' trackers for high mortgage rates

Paschal Donohoe: ‘Four in 10 are loss-making trackers’. Photo: Frank McGrath
Paschal Donohoe: ‘Four in 10 are loss-making trackers’. Photo: Frank McGrath
Charlie Weston

Charlie Weston

Finance Minister Paschal Donohoe claims that "loss-making trackers" were one of the reasons mortgage rates are so high in this country.

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

Mr Donohoe also insisted 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 more than four in every 10 mortgages in this country are still loss-making trackers," he said.

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 at 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.

But he agreed with the central conclusion of the Department of Finance report that the main reason mortgage rates in this country are high due to the capital demands and cost inputs imposed on the banks.

Permanent TSB chief executive 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 stated.

Non-bank lenders include the likes of Finance Ireland and Dilosk, with An Post also expected to enter the home-loans market.

Meanwhile, a separate report warns that people with tracker mortgages and younger borrowers will be at risk when the European Central Bank rates eventually rise.

Research from the ESRI says any rise in ECB rates would be immediately passed through to those on tracker rates.

It points out that younger households, on lower incomes and at an early stage of their mortgage, are at risk from higher European interest rates. The research paper advocates those on tracker rates overpay on their mortgages, if they can.

It advises those on lower income, who are at the start of their mortgages, to considering opting for a fixed rate.

The ECB is not expected to increase its key lending rates for another year or two.

Irish Independent

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