A recent report by the Central Bank suggests that high variable mortgage rates are pushing more and borrowers on to fixed rates.
The figures show that demand by first-time and existing homeowners was behind a net increase of €2.3 billion in fixed-rate home loans in 2015. Variable rate home loans for homeowners and buy-to-let landlords fell by €4.3bn in the year, according to the bank’s bulletin on personal credit and deposits trends.
“These developments are reflective of the current interest rate environment where fixed-rate mortgages have increasingly favourable rates,” the Central Bank said. Consumer groups and opposition politicians have been saying for the last few years that the costs of mortgages here are far too high and do not reflect the cheap or zero cost of funds available to lenders in the eurozone.
John Lowe the Money Doctor stated “the lowest mortgage variable interest rate on offer in Ireland is 3.2% matched by the same rate for the best 3 year fixed rate. However at the end of the fixed term – 3 years – the rate defaults to the standard variable rate for that lender.. 4.3% currently. Consumers need to understand the ramifications of fixed mortgage rates.”
The banks in the past said regulatory factors such as the relative difficulties facing banks in repossessing properties explain the difference between interest rates here and the rest of the eurozone.
Finance Minister Michael Noonan undertook last summer to persuade lenders to lower their mortgage rates and called in the chiefs of the banks in a series of meetings. Most banks responded by cutting their fixed-rate home loans. The Central Bank, for its part, does not have the powers to control rates charged by the Banks. As recently as last week, the ECB cut its main refinancing rate to zero — which theoretically in the currency union should go some way to drive down the retail costs of borrowing for all customers.
There was a small increase in the fourth quarter in loans for home buyers — for the first time since the Central Bank first started collecting the data in 2011.