Irish consumers still losing out on mortgage/deposit rates

Irish homeowners continue to pay above the odds for their mortgage borrowings and are being under-compensated for their deposits, new figures from the Central Bank show.

Yes, despite another fall in variable mortgage rates in December, Irish homeowners are paying an average new business rate of 3.76 per cent on their mortgage. This compares with an average rate for the Euro area of just 1.99 per cent, with homeowners in Luxembourg for example, paying an average rate of just 1.76 per cent .

In Q4, rates for new mortgage lending fell by 20 basis points, down to 3.76 per cent for owner occupiers, a steady decline from 4.2 per cent in the final quarter of 2014 - but not enough to appease over-stretched homeowners.

The figures also show a shift from variable to fixed rate products, with as many new mortgage borrowers opting for fixed as variable rate mortgages. The ratio has shifted to 50:50 from the second quarter of 2015 onwards, compared with 61 per cent opting for variable in December 2014.

This is probably because rates on fixed mortgages are typically cheaper than SVR rates. Owner occupiers for example, can borrow over one-three years for 3.67 per cent, compared with the aforementioned 3.76 per cent for variable rates.

“This change reflects consumers’ preference for cheaper fixed rate products currently on offer,” the Central Bank said.

Investec expects new mortgage lending rates to fall again during the year, down to 3.5 per cent by 2017.

Existing mortgage holders also saw a drop in their cost of funding, with SVRs falling by 11 basis points to 3.96 per cent, down from 4.18 a year earlier. Mortgages fixed for one to three years also fell, down from 4.51 per cent in December 2014 to 3.83 per cent in December 2015.

Last week the Fair Mortgage Rates campaign, led by Brendan Burgess, launched its pre-election manifesto to protect those who cannot switch lenders. It wants the next government to commit to ensuring that existing customers should have a right to avail of the rates available to new customers, and to impose a ceiling on variable mortgage rates of 4 per cent above the ECB rate .

Mr Burgess says that borrowers of closed lenders, such as Dankse Bank, ACC Bank or the funds have acquired mortgage books from Irish Nationwide are particularly vulnerable to rising rates , arguing that there is nothing to stop them from raising “the variable mortgage rate to 10 per cent in the morning”.

“If they were to do so, neither the Central Bank nor the Minister for Finance could do anything about it. They can raise these rates without fear of losing new business as they are not in the market for new business,” he says.

Bad news for savers

And when it comes to savings, Irish consumers are also missing out, as the statistics point to further bad news for savers on the deposits front.

New deposit rates fell to just 0.21 per cent at end December, compared with a Euro area average of 0.65 per cent.

And rates may yet fall further, given the trend towards negative rates across Europe.

If this was to happen, analysts at Investec say Irish eposits are unlikely to remain very “sticky” if deposit rates are reduced significantly below 0 per cent.

“These monies would likely find their way to stocks or other asset classes as well as storage under mattresses,” they said, although added that negative rates will be limited in the retail banking sector.