Mortgage interest rates kept up by conflicting State policies

One of the benefits of the EU single market in financial services was meant to be cheaper borrowing rates. However the financial crisis drove lenders back into their national markets and competition lapsed. Nowhere is this clearer than in the Irish market for mortgage interest rates, where the average cost of a new loan, at 3.38 per cent, is not far off twice the EU average.

The banks would argue that this is necessary in part to account for the super-low rates available to those on tracker mortgages. But with funding costs at an all-time low – and many depositors being paid little or nothing – this is no excuse for the systemic overcharging of the rest of their mortgage customers.

Hopelessly confused

Fianna Fáil’s bill to give more power to the Central Bank to control interest rates has gone through pre-legislative committee hearings and is expected to go to committee stage early this year.

Ironically, the Central Bank doesn’t want these powers. The underlying picture remains hopelessly confused. The Government is simultaneously calling on the banks to cut rates, while at the same time hoping to maintain bank profitability, particularly to sweeten the sell-off of the State’s AIB shares. Meanwhile the banks also face serious restrictions and legal costs on repossessing properties.