Mortgage rates in Ireland cheaper than eurozone

Wednesday 05 December 2012 12.35
Europeans tend to have fixed mortgages so Ireland is currently cheaper
Europeans tend to have fixed mortgages so Ireland is currently cheaper

Irish mortgage rates are lower than the average for the euro zone, but short term loans are more expensive, according to new statistics from the Central Bank.

RTE’s Economics Correspondent Sean Whelan has been analysing them.

The Central Bank says the weighted average interest rate on all outstanding Irish mortgages is 2.98%, lower than the comparable euro area average rate of 3.85%.

While average mortgage rates may be lower in Ireland, short term loans of up to one year, including overdrafts and credit cards, are more expensive in Ireland than the euro area average, with the rate here 8.73% compared to the average rate of 8.07%.

Longer loans cheaper

Longer term loans (over five years) were cheaper here at 4.12%, compared with a Euro area average of 5.25%.

The large difference in mortgage rates is due to the higher proportion of variable rate mortgages in Ireland, particularly the prevalence of tracker mortgages.

In most other euro area countries, householders tend to be on long term fixed interest rate mortgages.

Almost 90% of new mortgages issued in the last six months were either variable rate or fixed for up to one year, but such loans accounted for just 30% of new mortgages issued for the whole euro are in the same period.

The equivalent euro area interest rate was higher than the Irish rate at 3.31%.

The weighted average interest rate on new loans - excluding mortgages - fell in March to 5.96%, from 7.75% in February.

However the Central Bank warned that because lending in this category has been very low over the past year - averaging €250m a month - that interest rates tend to be very volatile.

Irish Banks also pay higher deposit rates than the euro area average, reflecting the intense competition for deposits by Irish institutions, which face difficulties in obtaining funds in the interbank market.

The weighted average deposit interest rate paid by Irish banks now stands at 3.47%, compared with the euro area average of 2.81%. The euro area average rate has increased by 35 basis points since the start of 2011, while the Irish rate has increased by 69 basis points in the same period.

Savers moving to long term deposits

Analysing outstanding volumes, the Central Bank said there is a shift in Irish savings away from short term demand accounts to deposit accounts with a longer maturity, which pay higher interest rates.

The weighted average interest rate at the end of March on deposits redeemable at notice was 1.95%, down 48 basis points from six months earlier.