Not a level playing field

THE Government is currently carrying out an investigation into the disparity between mortgage interest rates in Ireland and the rest of Europe.

The current ECB rate is just above 0pc, while the minimum variable rate in Ireland for a first-time buyer is in the region of 3.25pc. The equivalent rate in other European countries stands at 1.5pc. On a typical €300,000 mortgage over 25 years this is a difference of €300 per month. That means that the difference between paying off a mortgage in Ireland compared to other EU countries is €3,600 per year or €90,000 over the term of the mortgage.

There is no acceptable reason. For the last 10 years, interest rates have been historically low, hovering just above zero. In late 2016, the US Federal Reserve increased interest rates to 0.5pc, just the second increase in 11 years. However, that doesn’t necessarily mean that interest rate increases in the euro zone are imminent. Indications are that there are approximately two years left of such low interest rates and rates will rise if the EU zone continues its slow but steady recovery.

So why the disparity? The banks here would say our higher rates are necessary to allow them to return to profit. This has now happened. Surely, the time has come to put a stop to this. Surely, given that both AIB and Permanent TSB are majority owned by the taxpayer the issue must be a priority.

According to Michael Dowling, chairperson of the Irish Brokers Association (IBA), “It is very hard to justify the differential between the interest rates being charged to Irish borrowers compared to people living in the EU. The State’s competition watchdog has launched a probe into the mortgage market and questioned the low-level of competition in property lending compared to our European neighbours. It is hoped that the Fianna Fail Bill to better regulate interest rates here will succeed and there will be greater accountability and transparency around the interest rates charged.”