Irish mortgage rates drop to euro area average for the first time in three years

Several lenders have cut their rates already this year amid increased competition in what has in recent years become a highly concentrated banking sector. Pic: Yui Mok/PA Wire

Irish mortgage rates have dropped to the euro area average for the first time in more than three years after falling marginally to 3.48%, new Central Bank figures show. 

The average interest rate on new mortgage agreements was down two basis points from April's 3.5% average as added competition in a historically concentrated market begins to take effect. 

The average rate matched the euro area for the first time since March 2023, having exceeded it since then, the Central Bank said. Irish mortgage rates are now the 12th highest in the 21-country eurozone, down from 10th place in April.

The annual decrease of the average interest rate on new mortgage agreements was 13 basis points.

For fixed-rate mortgages, the average rate fell marginally by one basis point to 3.44%, representing 93% of total new mortgage lending. For variable mortgages, the average rate fell by 10 basis points to 4.03%.

In total, the volume of new mortgage agreements increased to €953m in May, an increase of €10m on an annual basis. 

Across non-mortgage lending, the average interest rate on new consumer loans rose by 17 basis points in May, with the total volume of new consumer loans equating to €270m.

Several lenders have cut their rates already this year amid increased competition in what has in recent years become a highly concentrated banking sector. Following the exit of KBC and Ulster Bank from Ireland, Ireland's pillar banks dominated the mortgage market. 

However, recent additions to the sector, including Spanish lender Bankinter, credit unions and soon, Revolut, are expected to enhance further competition for prospective homeowners. 

Furthermore, the upcoming takeover of PTSB by Austrian-owned Bawag could lead to more intensified competition in the market as it might decide to challenge the other banks.

Yet, while competition may help alleviate Ireland's historically high mortgage rates, recent decisions by the European Central Bank may soon be reflected across Irish lenders. 

Last month, the ECB decided that it could no longer ignore the monetary bloc's upswing in inflation, hiking its key interest rates for the first time in almost three years.

Following months of war in Iran and soaring oil prices, the ECB raised its interest rates by a quarter-point to 2.25%, making it the first major central bank to respond to the ongoing conflict.

Inflation across the 21-country eurozone surpassed 3% in the run up to the bank's June Governing Council meeting, well above the bank's 2% target, with economic growth across the bloc also weak. The bank now expects inflation to average 3% in 2026, 2.3% in 2027 and 2% in 2028. The ECB's next meeting is July 22.