Banking customers hit sweet spot as rates for mortgages fall while they rise for deposits

While mortgage rates fall, deposit rates crept upwards to 2.75%, reaching a 15-year high but slightly below the eurozone average of 3.03%

Central Bank figures showed mortgage lending volumes have tumbled to €808m, a 6% drop compared to June 2023.

Irish mortgage rates continued to ease ahead of a European Central Bank (ECB) meeting next month, while savers gained from an increase in deposit rates.

Figures from the Central Bank showed the average interest rate on new Irish mortgage agreements dropped to 4.11% at the end of June, representing a six basis-point fall on the previous month, marking a further fall from peak mortgage rates recorded in March and dropping to the lowest level in 10 months.

Irish banking customers have hit a sweet spot as while mortgage rates fall, deposit rates crept upwards to 2.75%, reaching a 15-year high but remain below the eurozone average of 3.03%.

“Irish households currently have over €150bn resting on deposit. But the vast majority of the money is still in accounts that pay little to no interest,” said Daragh Cassidy head of communication at comparison website Bonkers.

This environment is likely to be temporary as the ECB is poised to make at least one more interest rate cut this year and while that will further drive down mortgage rates, it will also impact rates for savers.

Mr Cassidy said anticipated interest rate cuts will “start putting downward pressure on deposit rates also”. 

The European regulator is scheduled to meet again to discuss its roadmap for interest rates in September but an unexpected rise in eurozone inflation and wage growth in Germany, the area's largest economy, cast fresh doubt on hopes of another rate cut as soon as next month.

Figures from Eurostat showed the pace of inflation quickened from 2.5% in June to 2.6% in July.

“It must be remembered too that even if the ECB reduces its rates further this year, Irish home-loan mortgage rates are highly unlikely to fall to the same extent,” said Trevor Grant, Irish Mortgage Advisors chairperson.

Mr Grant echoed concerns from industry brokers previously voiced to the Irish Examiner that banks are unlikely to be quick in passing on rate reductions to customers as they were overall slow to pass on increases.

The ECB reduced rates in June for the first time since it began an aggressive campaign of hikes that began in July 2022 to drive down stubborn inflation but the Governing Council maintained it was not committed to any particular path when it comes to interest rate cuts.

Meanwhile, the Central Bank figures also showed mortgage lending volumes have tumbled to €808m, a 6% drop compared to June 2023.

Elsewhere, a separate report published last month showed eyewatering house prices may have contributed to the slowing number of home sales in recent months.

The Geowox Housing Market Report showed home sales prices increased 5.3% in the three months to the end of June compared to the same period a year earlier.

House hunters are also battling a chronic shortage of supply on the market which has been fuelling prices.

Housebuilding activity has ramped up this year ahead of a looming election, but a leading industry survey by BNP Paribas recently predicted it was "unlikely" there will be enough homes delivered to meet housing targets.