Why we pay more for mortgages


Sir,– David McWilliams argued that existing loans in the Irish banking system, particularly mortgage loans, can be refinanced at lower rates using cheaper funding from the European Central Bank (ECB) (“Why an Irish mortgage costs ¤80,000 more than a German one”, Analysis, October 10th).

This is not correct.

It is true that the ECB offers banks long-term funding at low interest rates through refinancing operations as part of their monetary policy tool. But this does not apply to mortgages. This long-term refinancing by the ECB is “targeted” towards lending to non-financial corporations and to households excluding loans for house purchase.

In other words, as stated by the Central Bank of Ireland before, the stock of mortgages held by Irish banks is not “eligible” toward the borrowing allowance in the ECB’s longer-term refinancing operations.

It is without argument that interest rates for mortgages and SMEs are higher in Ireland compared with other jurisdictions in the EU.

However, it is also true that Ireland has one of the highest capital requirements for banks in the euro zone which increases the cost of capital.

For example, banks in Ireland hold on average twice the level of capital for performing mortgages and SME loans compared with banks in Germany.

In addition, it is more difficult to enforce security in Ireland for what is supposed to be secured lending, which makes it more costly to lend. – Yours, etc,


Chief Economist,,

Banking and Payments

Federation Ireland,

Dublin 2.

Sir, – I’m disappointed that the Government, in borrowing mood, did not use its position as the major shareholder in AIB to adapt David McWilliams’s suggestion that it refinance its mortgage book by borrowing at the current negative or zero rates and offer mortgages to its customers at European average rates of 1.5 per cent to 2.5 per cent .

This would surely have been the most efficient way to put money in the pockets of the hard-pressed middle-income sector who are the central core of income-tax payers.

It would offer greater affordability to those not yet on the property ladder.

Other banks would be forced to follow suit, and the public in general would see some benefit in kind from the financial debacle that brought the country to its knees in 2010. – Yours, etc,



Dublin 18.

Sir, – Although well-intentioned, articulate and thought-provoking, the article by David McWilliams fails to address the reasons behind the higher lending rates of Irish banks.

The funding costs of Irish banks tend to be higher than their European peers – funding provided by market participants – and that is a result of the domestic property crash 12 years ago and the perceived higher risk of funding our banks.

The banks here are subject to onerous capital charges via a wide range of specific additional buffers for systemically important financial institutions, as per the ECB single supervisor mechanism mandates.

Banks everywhere are having to migrate to newer digital platforms, necessitating huge investment to leverage up their product offerings and stay relevant in the face of increased competition from fintechs especially.

The threat of cyber crime and the cost of making online banking safe are also relevant.

The structure of the Irish bank sector leaves much to be desired – high barriers to entry, a small number of large players and well-proven inertia on the part of homeowners who really are not empowered to find cheaper options elsewhere.

A part of the solution to that impasse is to provide higher-quality financial education to consumers about these extra costs over the lifetime of a mortgage.

Ideally, a fully fledged European cross-border mortgage market could be the answer.

I gather that the European Commission wishes to boost transnational financial borrowing for homeowners via its consumer credit directive, post-financial crisis, but the take-up and implementation to date have been lacklustre.

It is not as simple as AIB availing of cheaper funds from the ECB.

This is a complex situation calling for a multifaceted and cohesive plan at domestic and EU level. – Yours, etc,



Dublin 11.