Brendan Burgess
Founder
- Messages
- 52,190
How much do mortgages cost in other European countries?
Irish mortgages twice as expensive as eurozone
It was edited a bit for space reasons. Here is the full text:
The average mortgage rate for new customers in Ireland is 4.2% whereas the average rate in the rest of the Eurozone is 2.09%. Yes, the rate in Ireland is actually double the Eurozone rate. So Paddy, who has a €200,000 mortgage, is paying €4,200 or €350 a month more than Pierre or Gunter.
And it’s not just variable rates. A German borrower can fix their mortgage rate for 10 years at just 2%. Bank of Ireland is the only Irish lender to offer a ten year fixed rate, and they charge 4.5%. Bankers say that there is no demand for long term fixed mortgage rates in Ireland. Well, at these rates, of course there is no demand! If borrowers could fix at rates of 2% for 10 years, there would be plenty of demand.
The Irish banks have claimed that the higher mortgage rates are due to their higher cost of funding. So are Irish banks more generous to depositors? They certainly are not. The average notice deposit rate paid by Irish banks is 0.48% compared to 1.03% in the Eurozone. So not only are Irish banks charging double the mortgage rate, they are paying only half the rate on deposits.
What about Irish banks which operate in Northern Ireland? The Minister for Finance told Michael McGrath in the Dáil this week that standard variable rates are higher in the North than in the South. But UK lenders price their mortgages according to the Loan to Value. A first time buyer, borrowing 95% of the price of the house, may well pay a high standard variable rate. But after a few years, when a combination of capital repayments and house price inflation reduces their loan to value, they get a much better rate. So, while AIB has a Standard Variable Rate of 4.75%, they charge 2.99% for borrowers whose mortgages are less than 60% of the value of their homes. And even that rate is not very competitive. HSBC offers its customers in Northern Ireland tracker rates as low as 2.19%.
The most expensive lender in Ireland is Danske Bank which has a Standard Variable Rate of 4.95%. Danske Bank in Denmark does not lend its own money to house buyers. Instead, it acts as an intermediary between depositors and borrowers. It issues long term bonds which depositors invest in. The funds are lent on to mortgage holders. And the rates? Mortgage rates are now negative. That is right. Danish borrowers are being paid around 0.2% to borrow money to buy a house. Of course, the interest rates on the bonds are negative also, which is not good news for Danish savers.
One of the worst aspects of the Irish lenders’ behaviour is the contempt they show for their existing customers. The lowest mortgage rate in Ireland is KBC’s 3.55%, but they give it to new customers only. KBC charges their existing customers 4.5% and refuses to reduce that rate. So you have the bizarre situation where KBC customers have to switch to another lender to avail of the other lender’s new business rate. Of course, many customers can’t switch because they have been in arrears or because their employment circumstances have changed so they are prisoners of the 4.5% rate.
The Minister for Finance has had a meeting with the Central Bank to put pressure on the banks to reduce the interest rates. But I have no confidence in the Central Bank. In August, they published a report claiming that new business rates in Ireland were 3.15%. When I queried this, they insisted that this was the correct rate and told me that I should not be relying on the rates mentioned in the banks’ ads. I discovered that they were classifying tracker mortgages as new business, despite the fact that no tracker has been given out since 2008. For some reason, the Central Bank has been misleading the public on mortgage rates. It’s unlikely that they will put pressure on the banks to reduce those rates.
What about the Competition and Consumer Protection Commission, the body with responsibility for advocating on behalf of consumers? When asked by Brian Hayes MEP to investigate the high rates they wrote back to him: “The Commission has no current plans to undertake any work in the area of Standard Variable Rates. To do so is not considered the best use of our resources”.
So 300,000 Standard Variable Rate borrowers are being overcharged €4,000 a year on their mortgages and the quango charged with the protection of consumers does not consider it to be worth investigating.
A legal cap on mortgage rates is a last resort, but we have reached that last resort.
Brendan Burgess is the founder of the consumer forum askaboutmoney.com
Irish mortgages twice as expensive as eurozone
It was edited a bit for space reasons. Here is the full text:
The average mortgage rate for new customers in Ireland is 4.2% whereas the average rate in the rest of the Eurozone is 2.09%. Yes, the rate in Ireland is actually double the Eurozone rate. So Paddy, who has a €200,000 mortgage, is paying €4,200 or €350 a month more than Pierre or Gunter.
And it’s not just variable rates. A German borrower can fix their mortgage rate for 10 years at just 2%. Bank of Ireland is the only Irish lender to offer a ten year fixed rate, and they charge 4.5%. Bankers say that there is no demand for long term fixed mortgage rates in Ireland. Well, at these rates, of course there is no demand! If borrowers could fix at rates of 2% for 10 years, there would be plenty of demand.
The Irish banks have claimed that the higher mortgage rates are due to their higher cost of funding. So are Irish banks more generous to depositors? They certainly are not. The average notice deposit rate paid by Irish banks is 0.48% compared to 1.03% in the Eurozone. So not only are Irish banks charging double the mortgage rate, they are paying only half the rate on deposits.
What about Irish banks which operate in Northern Ireland? The Minister for Finance told Michael McGrath in the Dáil this week that standard variable rates are higher in the North than in the South. But UK lenders price their mortgages according to the Loan to Value. A first time buyer, borrowing 95% of the price of the house, may well pay a high standard variable rate. But after a few years, when a combination of capital repayments and house price inflation reduces their loan to value, they get a much better rate. So, while AIB has a Standard Variable Rate of 4.75%, they charge 2.99% for borrowers whose mortgages are less than 60% of the value of their homes. And even that rate is not very competitive. HSBC offers its customers in Northern Ireland tracker rates as low as 2.19%.
The most expensive lender in Ireland is Danske Bank which has a Standard Variable Rate of 4.95%. Danske Bank in Denmark does not lend its own money to house buyers. Instead, it acts as an intermediary between depositors and borrowers. It issues long term bonds which depositors invest in. The funds are lent on to mortgage holders. And the rates? Mortgage rates are now negative. That is right. Danish borrowers are being paid around 0.2% to borrow money to buy a house. Of course, the interest rates on the bonds are negative also, which is not good news for Danish savers.
One of the worst aspects of the Irish lenders’ behaviour is the contempt they show for their existing customers. The lowest mortgage rate in Ireland is KBC’s 3.55%, but they give it to new customers only. KBC charges their existing customers 4.5% and refuses to reduce that rate. So you have the bizarre situation where KBC customers have to switch to another lender to avail of the other lender’s new business rate. Of course, many customers can’t switch because they have been in arrears or because their employment circumstances have changed so they are prisoners of the 4.5% rate.
The Minister for Finance has had a meeting with the Central Bank to put pressure on the banks to reduce the interest rates. But I have no confidence in the Central Bank. In August, they published a report claiming that new business rates in Ireland were 3.15%. When I queried this, they insisted that this was the correct rate and told me that I should not be relying on the rates mentioned in the banks’ ads. I discovered that they were classifying tracker mortgages as new business, despite the fact that no tracker has been given out since 2008. For some reason, the Central Bank has been misleading the public on mortgage rates. It’s unlikely that they will put pressure on the banks to reduce those rates.
What about the Competition and Consumer Protection Commission, the body with responsibility for advocating on behalf of consumers? When asked by Brian Hayes MEP to investigate the high rates they wrote back to him: “The Commission has no current plans to undertake any work in the area of Standard Variable Rates. To do so is not considered the best use of our resources”.
So 300,000 Standard Variable Rate borrowers are being overcharged €4,000 a year on their mortgages and the quango charged with the protection of consumers does not consider it to be worth investigating.
A legal cap on mortgage rates is a last resort, but we have reached that last resort.
Brendan Burgess is the founder of the consumer forum askaboutmoney.com
