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rate cut will benefit sellers not buyers

KBC has announced that new borrowers and those who switch their mortgage from other banks will have 0.2pc knocked off their interest rate for the life of the loan, provided they also open a current account with KBC.

Taking 0.2pc off KBC's standard variable mortgage rate (which is 4.47pc where the value of the loan is between 80pc and 90pc of the value of the property) may seem like small beer.

But it's not. It marks the first outbreak of real competition in Ireland's broken mortgage market since the housing bubble burst in 2008.

I can't help remembering the reaction of the other banks when Bank of Scotland (Ireland) announced way back in 1999 that it would charge mortgage borrowers only 1pc more than the official ECB interest rate at a time when the other banks were charging at least 2pc more.

One bank boss at the time smugly declared that he was "not going to lose any sleep" over the move. He may not have lost any sleep but he quickly lost of his job. After initially pooh poohing BoS(I)'s move, all of the other banks were quickly forced to follow suit.

Will the same happen this time? Maybe, but probably not just yet.

Since the housing bust new mortgage lending has collapsed. Last year the banks paid out just €2.6bn of new mortgage lending between them - down 93pc on the near-€40bn which they lent to housebuyers in the peak year of 2006.

We aren't going to see those volumes of mortgage lending again any time soon, perhaps not even in our lifetimes.

overdue

However, what the (Belgian owned) KBC move does show is that overseas banks are looking at the utterly obscene margins which the Irish banks are making on their variable rate mortgages, 4.35pc over the official ECB rate of just 0.15pc - and deciding that they want some of that for themselves.

Now that KBC has shown its hand, will other foreign-owned banks be tempted to do likewise?

A bit of competition is long overdue in the Irish mortgage market.

Unfortunately a lack of competition between mortgage lenders is only one of the problems in the housing market.

An even bigger problem is the acute shortage of houses, both new and second-hand, being offered for sale.

Last year, just 27,500 houses and apartments changed hands while the 8,300 new houses built was the lowest since records began in 1970.

Until this scarcity of new and second-hand houses eases, any reduction in mortgage rates is likely to feed through into higher house prices rather than lower mortgage repayments.


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