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Tuesday 20 February 2018

Irish mortgages twice as expensive as eurozone

Michael McGrath
Michael McGrath

Brendan Burgess

The average variable mortgage rate for new customers in Ireland is an extraordinarily high 4.2pc. Let's put that in context to show how mortgage customers in this country are paying through the nose. The average rate in the rest of the eurozone is just 2.09pc. Yes, the rate here is actually double the eurozone rate. So Paddy, who has a €200,000 mortgage, is paying €4,200 a year or €350 a month more than Pierre in Paris or Gunter in Gelsenkirchen.

And it's not just variable rates. A German borrower can fix their mortgage rate for 10 years at just 2pc. Bank of Ireland is the only Irish lender to offer a 10-year fixed rate, and they charge 4.5pc. Bankers say that there is no demand for long-term fixed mortgage rates in Ireland. Well, at these rate s, of course there is no demand! If borrowers could fix at rates of 2pc for 10 years, there would be plenty of demand.

The Irish banks have claimed that the higher mortgage rates are due to their higher cost of funding. So are Irish banks more generous to depositors? They certainly are not. The average notice deposit rate paid by Irish banks is 0.48pc compared with 1.03pc in the eurozone. So not only are Irish banks charging double the mortgage rate, they are paying only half the rate on deposits.

What about Irish banks which operate in Northern Ireland? The Minister for Finance Michael Noonan told Michael McGrath in the Dail this week that standard variable rates are higher in the North than in the South. But UK lenders price their mortgages according to the Loan to Value. A first-time buyer, borrowing 95pc of the price of the house, may well pay a high standard variable rate. But after a few years, when a combination of capital repayments and house price inflation reduces their loan to value, they get a much better rate. So, while AIB has a standard variable rate of 4.75pc, it charges 2.99pc for borrowers whose mortgages are less than 60pc of the value of their homes. And even that rate is not very competitive. HSBC offers its customers in Northern Ireland tracker rates as low as 2.19pc.

The most expensive lender in Ireland is Danske Bank, which has a standard variable rate of 4.95pc. Danske Bank in Denmark does not lend its own money to house buyers. Instead, it acts as an intermediary between depositors and borrowers. It issues long-term bonds which depositors invest in. The funds are lent on to mortgage holders. And the rates in Denmark? Mortgage rates are now negative. That is right. Danish borrowers are being paid around 0.2pc to borrow money to buy a house. Of course, the interest rates on the bonds are negative also, which is not good news for Danish savers.

One of the worst aspects of the Irish lenders' behaviour is the contempt they show for their existing customers. The lowest mortgage rate in Ireland is KBC's 3.55pc, but they give it to new customers only. KBC charges their existing customers 4.5pc and refuses to reduce that rate. So you have the bizarre situation where KBC customers have to switch to another lender to avail of the other lender's new business rate. Of course, many customers can't switch because they have been in arrears or because their employment circumstances have changed so they are prisoners of the 4.5pc rate.

Mr Noonan met the Central Bank to put pressure on the banks to reduce the interest rates, with no result so far. It means 300,000 standard variable rate borrowers are still being overcharged €4,000 a year on their mortgages compared with the rest of the eurozone. A legal cap on mortgage rates is a last resort, but we have reached that last resort. Brendan Burgess is the founder of the consumer forum

Sunday Independent

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