It's been more than 20 years since plans for a single financial services market in Europe first took shape, but progress has been limited, inhibited by national interests and a heterogeneous marketplace, characterised by differing rules and regulations.
Figures for cross-border personal financial services show how limited it is. The share of consumers who have bought banking products from another member state is less than 3 per cent for credit cards, current accounts and mortgages; only 5 per cent of consumer loans have been obtained cross-border; and cross-border insurance accounted for only about 3 per cent of total gross written premiums in 2011 and 2012.
Change may be on the way however. Late last year, the European Commission published a green paper entitled Better products, more choice, and greater opportunities for consumers and businesses, the first step in a consultation process, which it is hoped will result in an action plan next summer. This will set out an agenda to remove obstacles to cross-border activity.
But if a single financial market finally comes to pass, what might it mean for Irish consumers?
Ireland has some of the highest mortgage rates in Europe, with all but lucky tracker mortgage holders paying over the odds to service their home loan debts. The average variable mortgage rate in Ireland is 3.4 per cent and, despite efforts from the Government to “encourage” the banks to lower their rates, Irish variable rates are still considerably higher than the euro zone average.
In France for example, the average rate is 2.73 per cent, 2.03 per cent in Luxembourg, and 2.39 per cent in Austria. This is not the only EU country with above-average rates – house buyers in Cyprus for example are paying an average rate of 4.43 per cent – but it means that Irish consumers are not benefiting from historically low interest rates in the way that many of their European peers are.
According to French Private Finance, a British company that helps get mortgages in France, for example, you can get a mortgage fixed at a rate of 2.7 per cent for 20 years in France. And you can also get a tracker mortgage, at a rate of the three-month Euribor rate plus 1.9 per cent (currently the three-month Euribor is just 0.018 per cent).
Of course Irish home buyers would have to accept other aspects of European markets, which may diminish the attractiveness of lower rates. In France for example, mortgage terms tend to shorter, at about 20 or maybe 25 years and you need a deposit of at least 20 per cent. But the savings could be significant.
Consider the example of someone taking out a mortgage of €300,000 at a rate of 3.4 per cent over 25 years here. If rates stay the same over the life of the mortgage, the total interest bill will be €145,748.
If they secure a rate of just 2.03 per cent from a Luxembourg lender, however, the total interest burden will be just €82,784. Who wouldn’t like to keep €60,000 or so to themselves?
Progress on cross-border mortgages is likely to be slow, however, given differences in procedures for personal insolvency, property valuation, repossession and collateral enforcement across Europe.
For now, though, there may be a possibility for Irish homeowners with foreign property to seek out a cheaper loan elsewhere. Consider the example of a couple with a mortgage-free investment apartment in Germany. They might find that it is possible to re-mortgage their Irish mortgage with a cheaper loan with a German lender by using the apartment as collateral. The savings, as set out above, could make the bureaucracy such a move would entail, worthwhile.
Deposit rates in the EU move in line with rates set by the European Central Bank (ECB) and are at historical lows, but there are always some idiosyncrasies at play. Remember when Irish banks offered high rates to shore up their balance sheets? Savers are not restricted to EU banks, they can place their deposits anywhere in the European Economic Area (EEA).
It is already possible to open non-resident savings accounts in other parts of the EEA, but language and bureaucracy can be a deterrent, as well as the fact that you often have to attend in person to open such an account. And, as several high-profile investigations have demonstrated, consumers need to be aware of their tax obligations when doing so.
But a single market for deposits may be a more realistic goal. German operation SavingGlobal for example, launched in 2014 with the aim of creating a true single European market for savings deposits.
It has already raised significant venture capital finance and is up and running in Germany. It hopes to launch soon across Europe as Raisin.com, with rates of 1.6 per cent on a one-year term deposit, or 2 per cent a year if you lock your money away for three years offered by Czech bank J&T Banka. The best equivalent rate on a one-year deposit in Ireland at present is 1.15 per cent with Nationwide UK.
Raisin will achieve this by partnering with banks across Europe, including Allied Irish Banks, as well as the Bulgarian American Credit Bank, Portuguese bank Novo Banco and German bank Grenke. It says that all deposits will be 100 per cent covered by the national deposit guarantee scheme in the country in which you place your deposits.
Ireland is not cheap for insurance, as the recent massive hikes in the cost of car insurance have clearly demonstrated. Figures from the Central Statistics Office show that in the year to December 2015, for example, the cost of car insurance soared 31.1 per cent, and the Department of Finance has commenced a review of insurance premiums to investigate why prices have risen by so much.
But could Irish consumers save if they could buy car insurance from a company somewhere else in the EU?
As a report from Insurance Europe shows, average annual premiums in Hungary are as low as €49, or €99 in the Czech Republic.
But they are also competitive in western Europe, at just €143 in France, and €178 in France, compared with €439 in Italy. And when it came to getting a quote for a Volkswagen Golf, Ireland was top of the pile, with a quote of almost €2,000, compared with less than €1,000 in France, and less than €500 in Latvia.
However, as noted in the report, variations in the costs and risks of providing cover can vary substantially between the different member states, which can justify some price difference, so the scope for cross-border car insurance may be lower than might be hoped.
However, for other forms of insurance, that are less tied to geographical location or local risk characteristics, there could be room for cross-border competition the commission suggests.
Life assurance, for example, could be a way for Irish consumers to save. A 25-year €100,000 term life insurance product for a 40-year-old would cost you from just €10 in Slovakia for example, or €12.40 in Spain, but as much as £65 (€86)per month in the UK, EU figures show. A similar policy would cost about €20 in Ireland.
With the impact of Christmas still being felt on many people’s credit cards, cheaper lending rates would be welcome for many.
And a cross-border market for financial services might achieve this.
A report last November from the Financial Services User Group of the European Commission showed that the average cost on a €500 credit card loan ranged from an annualised percentage rate (APR) of 13.49 per cent in Belgium, to 43 per cent in Slovenia.
Ireland does not fare too badly in this comparison, however, as it is possible to get a credit card with AIB that charges an APR of just 13.6 per cent, even if the average rate charged is closer to 20 per cent.