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Mortgage Interest Rates

Dáil Éireann Debate, Thursday - 28 April 2022

Thursday, 28 April 2022

Questions (187)

Bernard Durkan

Question:

187. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which home borrowers in Ireland have to pay higher interest rates than many of their counterparts throughout the European Union; if these issues are being addressed in the short and medium-term; and if he will make a statement on the matter. [21880/22]

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Written answers

I am aware that the general level of new lending interest rates in Ireland is higher than is the case in many other European countries.  The most recent data published by the Central Bank on this issue indicates that, at end February 2022, the weighted average interest rate on new Irish mortgages was 2.76% compared to an average of 1.36% for the euro area.  However, the price lenders charge for their loans is a commercial matter for individual lenders.  As the Deputy is aware, I as Minister for Finance cannot determine the lending policies of individual banks, including the interest rates they charge for their mortgages and other loans.   

Nevertheless, it should be noted that, over the past number of years, mortgage interest rates have declined.  For example, interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.76% at end-February 2022.  Also, in terms of fixed rate mortgages, the weighted average interest rate on new fixed rate mortgage agreements stood at 2.60% in February 2022, down from 4.11% in December 2014.

However, it should also be noted that Irish mortgage and other loans can have different characteristics to those offered in other countries. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Also Irish mortgages are generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.

There are also a number of important factors which will likely influence the interest rates charged on Irish mortgages. These include for example operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:

- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;

- the level of non-performing loans which is higher in Ireland relative to other European banks (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks); and

- higher cost-to-income ratios which has been a characteristic of the Irish banking sector in recent years. 

To conclude, I appreciate that a greater level of sustainable competition in the credit market will be of benefit to consumers and other borrowers.  Accordingly, the review of the retail banking market which is now underway in my Department will, among other issues, consider how the banking system can best support economic activity, assess competition and consumer choice in the market for banking services and consider options to further develop the mortgage market.

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