Ireland, along with Greece, endures the highest mortgage rates in EU

Overall trend appears to be downward, albeit very, very slowly
Ireland, along with Greece, endures the highest mortgage rates in EU

The only meagre consolation here is that our average interest rates fell by 0.11% in the year to last November. Picture: Pexel

Who pays the highest mortgage rates in the EU? We do, together with the Greeks. 

According to the Central Bank of Ireland’s latest interest rate bulleting — released this week — the average interest rate on new mortgages agreed in November was 2.79%. That’s over twice the EU average of 1.31%.

Just to give you some idea of what’s available elsewhere: Last summer, Jyske Bank in Denmark launched the world’s first negative interest rate mortgage. Homeowners who take out a 10-year fixed mortgage make their repayment as usual, but the total borrowed actually reduces by more than the borrower has paid.

How is this possible? It dates back to 2014, when the European Central Bank, in an effort to stimulate the economy and raise inflation, reduced one of its key interest rates below zero. 

These reductions continued until September 2019, when the bank’s deposit facility rate reached minus 0.5%. Commercial banks wishing to borrow money from the bank were paid for the privilege.

Up until last summer, these rates were never passed on to consumers. Competitive pressures are changing this however, and earlier this month, Finnish bank Nordea — which operates across Northern Europe — introduced 20 year fixed mortgage rates of 0%.

The meagre consolation here is that our average interest rates fell by 0.11% in the year to last November.

Daragh Cassidy, head of communications at comparison and switching website, welcomes the reduction.

The overall trend does appear to be downward, albeit very, very slowly. 

"Yet while there are some valid reasons as to why mortgage rates are higher in Ireland than they are in the rest of Europe, it’s tough to accept that rates here should be over double the Eurozone average, and it’s hugely frustrating that they haven’t fallen further," he said.

"The recent arrival of Avant Money into the market doesn’t seem to be impacting much on rates yet either.”

According to the Banking and Payments Federation Ireland, the average first-time buyer mortgage in Ireland is around €225,000. This means someone borrowing this amount over 30 years is paying over €167 extra a month, or just over €2,000 a year compared to our European neighbours. Pretty frustrating.

The truth however is that a direct comparison of mortgage rates across the union isn’t really possible. 

Trevor Grant, chairman of the Association of Irish Mortgage Advisers, says it’s important for Irish consumers to realise that these Danish mortgages are subject to fees and charges and are not quite as free as they suggest.

PTSB has introduced new mortgage rates this week.
PTSB has introduced new mortgage rates this week.

“In addition, repossessions proceed far quicker in Denmark than in Ireland, where protection for the consumer is far stronger.”

He does acknowledge however that there is scope for further reductions here.

“The good news is that the rates offered to new mortgage applicants continue to drop, with PTSB being the latest to introduce new rates this week.”

He says that mortgage market statistics confirm that an increasing number of buyers — more than one in three — are now seeking market-based advice before deciding which mortgage to go with, or whether to opt for a fixed or variable rate. Buyers are also looking for advice on whether the upfront cash inducements offered by lenders are worth taking.

“More and more applicants are realising that while a borrower’s own bank may offer them the best deal available from their mortgage offering,” says Mr Grant. 

Banks are simply not obliged to tell them if a better deal is available with another lender.

Despite the pandemic, we’re still seeing an increase in the number of mortgages advanced to Irish consumers. The volume of new mortgage agreements amounted to €822m in November, an increase of 1% on November 2019, and up 10% on the previous month.

It’s also interesting to note that the preference for fixed rate mortgages is as pronounced as ever. No fewer than 80% of mortgages in the three months to November were fixed rather than variable, indicating the good value that continues in this section of the market.

And with competition continuing to heat up, Daragh Cassidy says that now more than ever, it’s important to shop around.

“There’s now a huge variation in interest rates and cashback incentives across all the different lenders; so find out who’s offering the best deal for you.

"While the average new mortgage rate in Ireland is still close to 3%, there are now rates as low as 2.30% on offer for standard first-time buyers with a 10% deposit — even lower if you have more equity to stump up.”

He asserts that switchers in particular have a lot to gain.

“In recent times Irish mortgage holders have been reluctant to switch, which is crazy given the potential savings involved. Many lenders now have dedicated switch teams in place to make the process as easy as possible and it often won’t be as much hassle as people think it might.”

“And while there are costs associated with switching mortgage provider, in many cases banks will provide a sizeable cashback incentive to those who switch, or a contribution towards the legal fees. 

"If you have €250,000 outstanding on your mortgage with 20 years remaining, and are paying an interest rate of 4% or above, you will save over €200 a month on your repayments.”

Demand for housing is still high, in spite of Covid-19.  Picture: PA
Demand for housing is still high, in spite of Covid-19.  Picture: PA

This week also saw the release of house price data from the Central Statistics Office (CSO) which indicated that the market was taking something of a breather after steady gains the previous year. 

Residential property prices increased by 0.2% nationally in the year to November, compared to an increase of 1.1% in the twelve months to November 2019. 

Strip out Dublin, however, and there’s evidence that the regional market is more buoyant. 

In Dublin, residential property prices saw a decline of 0.9% in the year to November, while property prices on this side of the M50 were 1.2% higher.

Trevor Grant expects that the mortgage market in 2021 is likely to experience material growth over 2020. He points out that a large percentage of potential house purchasers working in the tech, pharma or financial services industries have been financially unaffected by Covid.

Covid-19 has negatively impacted the number of homes built in 2020, though the demand for homes, both new and second-hand, continues unabated. 

"This is reflected the higher asking prices and in the way that sale prices throughout the country have held up during the pandemic. We can only hope that the lockdown on construction is relatively short-lived, and that developers can satisfy as much demand as possible during the remainder of 2021.”

He points out that during the various stages of lockdown, and particularly since the New Year, some potential vendors may not have put their properties on the market due to the general uncertainty and the viewing restrictions imposed.

So we can expect some increase in supply when restrictions eventually ease.

More in this section

The Business Hub

News and analysis on business, money and jobs from Munster and beyond by our expert team of business writers.

Sign up
News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up

Some of the best bits from direct to your inbox every Monday.

Sign up
Execution Time: 0.228 s