Higher mortgage rates a ‘drag’ on economy, report finds

Higher than necessary mortgage rates for borrowers act as a “drag” on the economy but any interference with lenders risks damaging the long-term prospects of banks, an analysis by the Central Bank has concluded.

The report looked at the difference between the official ECB rate and what banks charge here for variable mortgages as well as the risks involved in regulating those charges.

The report, which discusses the cost of credit risk associated with lending and the cost of running a bank, concludes that lending rates depend on the cost of funds.

DISCOVER MORE CONTENT LIKE THIS

The analysis shows that, when renegotiated loans are stripped out, the new mortgage interest rates in Ireland at the end of last year were 4.26% compared to a median rate of 2.53% in other European countries.

Finance Minister Michael Noonan said the report proved that lenders were charging more than needed.

The report states: “The spread between official ECB rates and the standard variable rate is relatively high and lending rates are above average compared to European peers.”

It notes the lack of competition in the lending sector here and claims the recovery has only just begun and that banks are still fragile.

It notes that, while there are “political pressures”, there should not be “risk taking” especially given the history of the sector here.

Furthermore, while higher rates affect borrowers, any interference could damage the economy.

It said while higher than necessary lending rates act as a drag on economic recovery, policy steps which interfere with rates create “damaging side-effects” and would also damage banks’ long-term prospects.

DISCOVER MORE CONTENT LIKE THIS

More on this topic

Removal of 'outspoken' Master of the High Court criticised by mortgage relief campaignersRemoval of 'outspoken' Master of the High Court criticised by mortgage relief campaigners

Bank can’t force lenders to write off home loan debtBank can’t force lenders to write off home loan debt

AIB to cut variable mortgage rate to 3.9%AIB to cut variable mortgage rate to 3.9%

ESRI calls for flexibility on new mortgage rules, including on 20% deposit ruleESRI calls for flexibility on new mortgage rules, including on 20% deposit rule


Lifestyle

I see that a website describes the call of Canarian cory’s shearwaters as ‘waca waca’. It’s a mad, hysterical call, uttered when the parent birds arrive to feed their nestlings.Cory’s shearwaters show long-distance qualities

Is it too much to hope that an important public health matter, such as Lyme disease, will be an issue in the general election? There’s been a worrying reluctance by the authorities to face up to the extent of the disease here.Facing up to Lyme disease

A paper published in Current Biology examines the extinction of a colourful little bird which, until recently, thrived in the eastern US. With the appalling environmental catastrophe enveloping Australia, home to 56 of the world’s 370 parrot species, this account of the Carolina parakeet’s demise is timely.Trying to save the parrot is not all talk

The recent rescue of a trawler 20km north of Fanad Head in Co Donegal gave us a glimpse of the enormous seas that occasionally strike that part of the coast.Islands of Ireland: Inishbeg Island begs the question

More From The Irish Examiner