Variable mortgage rates fall as competition picks up

Central Bank data show variable rates on new mortgages fall 7 points in past year

Variable mortgage rates, so long the scourge of the homebuyers here, may finally be coming down.

According to the Central Bank, the average variable rate applied to new mortgages issued in the Republic fell by 7 basis points in the past year to stand at 3.31 per cent.

While this is still well above the euro area average, which was 1.81 per cent in March, the gap has begun to close.

Increased competition in the banking sector here may be responsible for the narrowing differential.

Since the crash Irish banks have failed to pass on lower interest rates to variable rate customers.

The banks have long maintained that the higher rates reflected the elevated risk of lending into the Irish market but in reality the premium was there to compensate for loss-making tracker portfolios.

Prof Kieran McQuinn of the Economic and Social Research Institute’s described it recently as “a breakdown in the monetary policy transmission mechanism”.

However, he noted that the “wedge” between rates here and elsewhere may finally be about to come down as healthier banks compete with each other again, undercutting rates in the process.

However he said the shift may be overtaken by a general uplift in rates generally across Europe as the European Central Bank ends its quantitative easing programme and begins to tighten monetary policy.

The Central Bank figures show fixed-rate mortgages accounted for 55 per cent of new agreements over the three months to March 2018, compared with 80 per cent of new agreements over the same period in the euro area.

The number of new buyers opting for fixed rates has jumped sharply in recent years. Back in 2014, fixed-rate products accounted for just 10 per cent of Irish home loans.

The volume of new mortgage agreements,excluding renegotiations, amounted to €523 million in March, bringing new agreements to €6.9 billion over the past 12 months.

New variable buy-to-let mortgage rates averaged 4.73 per cent in the first quarter, a decrease of 4 basis point year on year.