Irish mortgage rates still among highest in euro zone, adding to high living costs

Central Bank data shows average mortgage rates here in May were 2.73% compared to a euro area average of 1.76%

File photo dated 22/01/08 of houses as more than a million struggling British families are spending at least a third of their income on housing costs, a think-tank has revealed today. PRESS ASSOCIATION Photo. Issue date: Thursday May 16, 2013. Work by the Resolution Foundation shows 1.3 million households on low to middle incomes are spending more than they can reasonably afford on mortgage payments, rent and maintenance costs - forgoing other essentials such as food to pay their bills. See PA story MONEY Housing. Photo credit should read: Rui Vieira/PA Wire

Irish banks continue to charge an interest rate premium on mortgage loans, adding to the already high cost of living here.

Central Bank data, published on Wednesday, shows the average rate charged on new mortgages in the State in the 12 months to May was 2.73 per cent compared to a euro area average of 1.76 per cent.

The figures show Irish mortgage rates were the second highest in the euro zone, second only to Greece.

The headline Irish rate was, however, down from 2.77 per cent in April. The Republic was also the only country to see a fall in its mortgage rates in May. All other countries saw invreases in their average rate, some of which were significant.


Finland once again has the lowest average mortgage rate in the euro zone at just 1.17 per cent, followed by France at 1.24 per cent. This time last year the average rate in Finland was just 0.68 per cent.

“These figures show the peculiarities of the Irish mortgage market. Rates here have been wildly out of kilter with the rest of the euro zone for years,” Daragh Cassidy, head of communications at price comparison website said.

“That continues — but this time it’s more positive. As rates have been increasing significantly in some countries over the past few months they’ve largely been static here,” he said, noting rates have almost doubled in Germany over the past year while in Ireland they have reduced slightly.

“Unfortunately for homeowners, the ECB has signalled that it will start raising rates later this month but we don’t really know by how much. However Irish mortgage rates are so out of kilter with the ECB base rate that we could see a small increase in the ECB rate not being passed on to consumers,” Mr Cassidy said.

“It’ll somewhat depend on the competitive pressures the banks feel under. On this point, it was encouraging to hear the CEO of Permanent TSB say last month that he feels the bank as well as the other Irish retail banks have the capacity to absorb the initial round of ECB rate hikes,” he said.

However, he warned tracker customers are likely to see an almost immediate increase in their repayments.

According to the Banking and Payments Federation Ireland (BPFI), the average first-time buyer mortgage in the State is around €270,000. “This means someone borrowing this amount over 30 years is paying around €131 extra a month compared to our European neighbours,” Mr Cassidy said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times