Average interest rate on consumer loans drops significantly

The Central Bank said: 'New floating rate consumer loans had a weighted average interest rate of 7.90% at end-July, while new fixed rate consumer loans had a weighted average interest rate of 5.05%.' File photo: Leah Farrell/Rollingnews.ie

The weighted average interest rate charged on new consumer loans dropped by 76 basis points to 6.72% during July, compared to the previous month, driven by a shift towards lower interest rate fixed rate lending, data from the Central Bank of Ireland shows.

The total volume of new consumer loans was €364m during the month, of which 59% was a floating rate, compared to 77% in June. The average rate is 57 basis points lower compared to the same month last year.

“New floating rate consumer loans had a weighted average interest rate of 7.90% at end-July, while new fixed rate consumer loans had a weighted average interest rate of 5.05%,” the Central Bank said.

In terms of household overnight deposits, the average interest rate stood at 0.15% while the average interest rate on new household deposits with agreed maturity was 1.92%.

The level of new business in new household deposits with agreed maturity was €1.75m, 13% higher than in June and 25% year-on-year.

This comes as the European Central Bank (ECB) meets in Berlin to discuss interest rates, with the markets expecting a 25 basis point increase to be announced on Thursday in order to try and bring down the rate of inflation. The rate of inflation across the Eurozone during August was estimated to be 3.3%. 

According to the Central Bank, the weighted average interest rate on new Irish mortgage agreements at the end of July was 3.48%, down one basis point from June and down 12 basis points annually. By contrast, the euro area average has increased by 24 basis over the past year to 3.54%.

Ireland now has the 11th highest interest rates in the eurozone up from 12th place in June.

The average interest rate on fixed rate mortgages was 3.44% in July, down two basis points month-on-month, while the average variable rate stood at 4.11%, up 15 basis points.

The total volume of new mortgage agreements increased to €1.2bn in July, up €70 million or 6% annual. The vast majority, 94%, of new mortgages in the month had fixed interest rates, the highest proportion since records began in December 2014.

Renegotiated mortgages totalled €537m in July, €224m higher compared to last year. The weighted average interest rate on renegotiated fixed rate mortgages was 3.24%, an increase of one basis point from the previous month.

Chairperson of Irish Mortgage Advisors, Trevor Grant, said: “While the average cost of new mortgages has fallen, given the expectation of another ECB rate increase tomorrow, borrowers need to be mindful that increased mortgage costs could be just around the corner.

“Many borrowers will understandably be worried about the prospect of another ECB rate hike tomorrow — the second increase in the space of three months, but it’s important that they are not unduly alarmed. Competition, and not the ECB, is the main influence on home loan rates in Ireland.

“There’s never been a better time to review and shop around for your mortgage. This could be an opportune time for borrowers to fix their mortgage, if they have not yet done so,” he said.

Non-financial corporation (NFC) agreements increased to €3.5bn in July, a monthly increase of 124% and a yearly increase of 231%. “The increase in new lending was driven primarily by loans of over €1m,” the Central Bank said.

The volume of new NFC loans with value over €1 million, which in July accounted for 90% of the volume of all new NFC loans, increased to €3.2bn, up 141% from June.