At last, Central Bank confirms Irish variable mortgage rates 1.8% higher than rest of Eurozone

Brendan Burgess

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The Central Bank has published its mortgage rates data today, and for the first time, provides the information for new business excluding trackers.

[broken link removed]

Of course, the Central Bank, for its own reasons, hides the vastly higher rate in a long complicated series of figures and graphs and verbiage.


The rate in Ireland is 4.26% from the Table at the end of the Information Sheet



The comparable rate for the Eurozone is 2.47%

From Page 2 of Statistical Release



Why does the Central Bank not highlight the fact that Irish borrowers are paying 1.79% more than borrowers in other Eurozone countries?

It’s hard to know. It could be that they want Irish variable rate borrowers to continue paying over the odds to maximise the profitability and solvency of the Irish banks and to subsidise the trackers and the defaulting mortgages.



What is the “3.64%” rate mentioned above?

It’s a nonsense figure which classifies rescheduled tracker mortgages as new business. You can see how nonsensical it is by the fact that it has increased by 10 basis points since November. The true interest rates have been falling in the last couple of months.

Why does the Central Bank persist in publishing such nonsense?

I have no idea. They claim it’s done on a standardised basis across the ECB.

But they should not highlight this figure as they know it includes rescheduled trackers which have an average rate of 1.05%

They definitely should not be making a false comparison claiming that the rate in the Eurozone is 117 basis points lower when it’s actually 177 basis points lower.

How much is this higher rate costing the average Irish variable rate mortgage holder?

If the average mortgage is €200,000, then the additional interest paid is €3,580 per year or €300 per month.
 
We are secretly paying for the bankers mistakes with these rates. I am looking at my mortgages as a landlord and thinking of getting out of the game. High mortgage rates and 75% interest offset only, no LPT offset are killing any reason for me to rent property out. My mortgages are 8 and 12 year old but the capital reduction is shocking slow as I cannot get ahead to pay a lump sum off.
 
Based on the headline on this thread I thought after your constant high lighting of the false figures in the CB's reports that they had capitulated. Not so apparently. Don't understand how they can continue with false figures.
 
Just flicked through the latest CB's quarterley report...

"Up to 65 per cent of all buy-to-let mortgages held by Irish credit institutions are trackers, while 45 per cent of primary dwelling mortgages are held at tracker rates. Generally, tracker mortgages generate a very low interest margin over deposits relative to other products. Based on current deposit rates, the margin on tracker loans is just over 50 basis points. However, banks have been increasing margins on other floating rate mortgage rates to counteract this. The most recent mortgage data collected by the Central Bank suggests that the average Standard Variable Rate (SVR) offered to Irish customers for a primary dwelling house is 4.2 per cent, some 300 basis points higher than the equivalent tracker rate previously offered. This is a better measure of rates offered by high street banks for new mortgage loans"

Have they flat out said this before? Sure if they're saying this in their own report they should now report the SVR as 4.2%?
 
Hi Spiderling

I have moved your post to this thread.

Well spotted.

They have said it before, but hid it in the small print.

I have not heard them saying before that the the increase in SVR was to counter the trackers.

Brendan
 
Even 4.2% as an average SVR for new loans seems low to me?
Or is it because of factors such as early years discounted rates to new business, low LTVs etc.?
Or maybe I'm simply mistaken?
 
Hi ClubMan

The top rate is 4.5% for loans of 90%

Many people have lower LTVs so they can borrow at as little as 3.55% with KBC

So 4.2% seems about right.

Brendan
 
It's interesting to note that the Central Bank is now reporting that the banks' margin on trackers is now over 0.5%. Hopefully we can now agree that trackers are not loss makers for our banks.

Separately, I would be interested to see a fuller argument as to why people think our Central Bank is not simply reporting interest rate statistics in accordance with the applicable ECB regulations (the MFI interest rate reporting requirements). I really don't see the grand conspiracy but I may well be missing something...
 
Sarenco said:
It's interesting to note that the Central Bank is now reporting that the banks' margin on trackers is now over 0.5%. Hopefully we can now agree that trackers are not loss makers for our banks.
Click to expand...

The Central Bank is basing it on deposit rates. In fact, the banks have a blended cost of funds which is much higher. From memory, the Bank of Ireland has a margin of 0.15% over the cost of funds. This is not enough to be profitable. ptsb has a negative margin of around 0.7%. So they are huge loss makers for ptsb.




The Central Bank is reporting interest rates in line with the MFI rules. I believe that it's misinterpreting those rules. To make matters worse, the ECB has said that the Central Bank is correct in its interpretation.

But it was never intended for the rules to produce garbage. If the requirement was to include cheap trackers as new business, the Central Bank should have stated clearly "The ECB definition of new business is misleading for Ireland". The real cost of new mortgages is 4.2% if you exclude trackers". I suspect that is incompetence on their part. But it could be intentionally misleading the public.
 
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Deposits represent the bulk of funding for Irish banks and deposit rates on average are now well below average tracker rates (bearing in mind that current accounts pay zero interest and represent roughly a third of all deposits).

It is simply untrue to say that trackers are loss making for Irish banks and I am at a loss as to why people insist on repeating this myth. If it was true you would expect banks to offer discounts for early repayment.

Are you now saying that the Central Bank is in fact reporting rates in line with their legal obligations?

The ECB regulations may not make much sense but that is hardly the Central Bank's fault. I am unclear how you could possibly know what the intention of the ECB was in formulating their reporting standards and frankly I would be stunned if any member of the public was misled by the reporting.
 

I have actually read the ECB documentation in depth. And the MFI stats were designed to give a true picture of interest rates across Europe. And also to see how ECB rate changes were being passed on.

They were not designed to allow the Central Bank to pretend that rates were 3.15% when they were actually 4.5%.

The Central Bank has a clear duty to produce meaningful information and not misleading information.

All they had to do was to say "Because of bizarre ECB rules we are legally obliged to include cheap trackers as new business, so the new business rate we are quoting is misleading. Excluding these trackers, the rate is actually 4.5% or 1.9% above the EU average"

Brendan
 

Fair enough but it seems to me that your real beef is with an aspect of the harmonised MFI reporting rules.
 
Hi Sarenco

It's not a beef as such. When they were written, they did not anticipate Irish cheap trackers being rescheduled without penalties.

Sometimes statistical rules have unintended consequences.

In that case, you publish the correct information and note that you are breaking the rules.

Or you publish both outcomes.

But you do not simply publish rubbish and make no reference to the fact that it's rubbish.

Brendan
 
Can I ask a question without straying the topic off course. MFI reporting rules seem to acknowledge trackers being in existence, however as a product they are no longer available in this country. My question is in two parts, are we now the only country in the Eu where a tracker is no longer available? Secondly, should MFI reporting rules exclude trackers altogether?
 
Hi Agent

The MFI rules are designed to include renegotiated mortgages , where they are rescheduled at market rates. So, for example, let's say that you are paying 6% and you renegotiate a market rate of 2.5%, then this is included as new business.

I suspect that Ireland is the only country with ridiculously cheap tracker mortgages which are renegotiated at the same rate.

See the attached with my comments

Brendan
 

Attachments

  • ECB definition of new business with BB annotation.pdf
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