Euro area mortgage rates are catching up with Ireland's

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NoRegretsCoyote

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The gap between Irish and euro area mortgage rates is longstanding and has been discussed a lot on AAM. Many have wondered if it would ever disappear and if Irish borrowers would be able to get access to credit at rates prevailing for other euro borrowers.

With the global inflation backdrop market interest rates have gone up a lot in the last six months and retail rates usually follow with a lag. A few Irish lenders have signalled rate rises so far but nothing visible in the statistics yet. New mortgages in Ireland fixed for one to five years were at 2.64% in May 2022, exactly where they were a year ago.

Meanwhile the average euro area rate has shot up in the first half of the year, at 1.89% in May 2022 compared to 1.43% in May 2021. See the spike in the orange line below,



It's not fully clear what the reasons are. I know in a lot of European mortgage rates are individually negotiated rather than advertised, so it's easier to push them up when wholesale rates change.

Still, Irish rates are now only 80bps above the rest of the euro area now, probably the tightest it's been in a decade. Is this the long sought-after convergence we've been dreaming of?
 
Doubt it, the Irish banks just haven't reacted yet - possibly for fear of a customer backlash or pressure from the government. After all, we own most of AIB, part of BOI
 
Update:

Euro area mortgages were at 2.27% in July, up from 1.44% a year previously.

Irish rates were at 2.59%, exactly the same as a year previously.

Comparison is for one- to five-year fixed rates for house purchase, new business.

I'm not sure why Irish rates are stuck where they are and euro area rates are rocketing.

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NoRegretsCoyote said:
I'm not sure why Irish rates are stuck where they are and euro area rates are rocketing.
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Give it one week – the ECB rate hike is next week, to be followed very shortly thereafter by rate increases by Irish lenders, I would imagine.

But it is a bit strange that they haven't moved sooner.
 
This is every country in the euro area minus the Baltics.

You can see Ireland (light green at the top) is the only country that hasn't seen a big increase in rates since the start of 2022.

Quite a few are up over 100bps.



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Paul F said:
Give it one week – the ECB rate hike is next week, to be followed very shortly thereafter by rate increases by Irish lenders, I would imagine.

But it is a bit strange that they haven't moved sooner.
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One could speculate that both the CCPC processes and consolidation wars going on were sugar coated by not moving mortgage rates.
 
If you look at the rates charged on all outstanding mortgages (not just new business rates), then Ireland is pretty much bang in line with the eurozone average.

Obviously the tracker books are reducing and become more profitable with ECB rate increases.

Also, Irish banks principally finance mortgage lending from deposits. For as long as banks can attract deposits while offering low or zero interest, I don't see any particular reason for new business rates offered by Irish banks to rise, all being equal.
 
Sarenco said:
If you look at the rates charged on all outstanding mortgages (not just new business rates), then Ireland is pretty much bang in line with the eurozone average.
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But Sarenco

You know that this is a tale of two halves.

1) Trackers are much cheaper than the eurozone average.

2) Non-trackers are much more expensive than the eurozone average.

The new business figures in Ireland are also misleading. Because so many existing customers are paying much higher than the new business rate.

Brendan
 
Hi Brendan

Of course that’s true but the point I was trying to make is that the relatively cheaper tracker loans are diminishing as a proportion of the overall book.

So banks can maintain their profit margins without having to raise new business rates, in contrast with lenders on the continent.
 
Brendan Burgess said:
The new business figures in Ireland are also misleading. Because so many existing customers are paying much higher than the new business rate.
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This is the same everywhere though especially when you have a predominance of accounts on longer fixed rates. I think new lending is as good a like-for-like comparison as you can get.


Sarenco said:
Also, Irish banks principally finance mortgage lending from deposits.
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Is this radically different elsewhere? In any case I think Irish banks have to hedge to some extent and the derivatives price they face are the same.


There are no real arbitrage opportunities at retail level of course to equalise things. Am still just a bit puzzled that Ireland is so far behind the curve.
 
I looked at comparable deposits of 1-2 year duration and over 2 years for new business.

In the euro area (purple and red lines) rates are up about 30bps since the start of the year, while in Ireland they are barely up at all.

Still, euro area mortgage rates are up a lot more than comparable-term deposits are.

browseChart
 
NoRegretsCoyote said:
This is the same everywhere though especially when you have a predominance of accounts on longer fixed rates.
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Hi Coyote

We have a completely artificial mortgage pricing system in Ireland.

At a time of rising ECB rates, you would expect the fixed rates to be higher than the variable rates, but it's the other way around in Ireland.

There is no justification for this, other than the variable rates are artificially high.

I doubt that is the same everywhere.

Brendan
 
Brendan Burgess said:
Hi Coyote

We have a completely artificial mortgage pricing system in Ireland.

At a time of rising ECB rates, you would expect the fixed rates to be higher than the variable rates, but it's the other way around in Ireland.

There is no justification for this, other than the variable rates are artificially high.

I doubt that is the same everywhere.

Brendan
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.. And further to your point. We've seen fixed rates remain artificially low while hedging costs have sky-rocketed
 
NoRegretsCoyote said:
Is this radically different elsewhere? In any case I think Irish banks have to hedge to some extent and the derivatives price they face are the same.
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Dutch banks and Nordic banks tend to have quite low levels of customer deposits - people tend to deposit their savings in other instruments there rather than deposit accounts. As a result, banks there tend to fund themselves much more through bond issues (which are often quite cheap covered bonds).
 
Received a letter from ICS informing me my variable rate was increasing by 1.25%!

That came out of the blue as missed news articles flagging it a few days previous.

Such was ther haste to ger the letter out that they forgot to include what the actual increase would mean in terms of increased monthly payment.
 
Paul F said:
Give it one week – the ECB rate hike is next week, to be followed very shortly thereafter by rate increases by Irish lenders, I would imagine.
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Unless I missed it, the Irish banks still haven’t increased their new business mortgage rates following the 8 September ECB rate hike.

We must be pretty close to the Eurozone average for new business at this stage.
 
Sarenco said:
Unless I missed it, the Irish banks still haven’t increased their new business mortgage rates following the 8 September ECB rate hike.
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I keep an eye on Bank of Ireland rates for existing customers like me and I screenshot fixed rates every so often. Rates are identical since October 2019 except for the ten-year rate which has gone up from 3.3% to 3.5%.

ECB statistics are only available to July but I suspect once the September numbers are released (in six weeks or so) you will see Ireland and euro area very close.
 
There are Irish government bonds that offer better return than mortgages now. I'm surprised that banks haven't moved at this point..
 
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