Greece leapfrogs Ireland to have highest interest rates in euro zone

Homeowners in the Republic no longer paid the highest rate of interest in the euro zone for mortgages in November, after being surpassed by Greece. Before that Irish home loans had been the most expensive for some time.

But Irish interest rates, standing at 3.04 per cent, compared to an average rate of 1.79 per cent across the euro zone.

The difference means an Irish consumer with a €200,000 mortgage is paying about €250 more every month than their euro zone peers, according to Brendan Burgess of the consumer forum Askaboutmoney.com.

In the three months to the end of November, 68 per cent of new loan agreements in the Irish market were for a fixed-rate mortgage, lower than the average across the currency bloc. The average fixed rate in Ireland was 3.02 per cent.

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Variable mortgages had a weighted average rate of 3.28 per cent in the period, up slightly on October.

“The vast majority of people pay their mortgage even if they have to struggle to do so. They are paying not only their own mortgage, but they are also paying the mortgage for those who haven’t made a mortgage payment in years,” said Mr Burgess.

“Those politicians and debt campaigners who call for a ban on home repossessions and who threaten to protest outside every eviction should realise that their irresponsible behaviour is imposing an additional cost of about €3,000 a year on responsible borrowers.”

As a result of the financial crisis, regulators now seek to ensure that capital levels are high enough to absorb any likely losses to avoid bailouts in the future. Because of the higher level of non-performing loans in Ireland, coupled with rules from the European Central Bank, Irish banks are now obliged to hold higher capital levels than they did 10 years ago.

Repossession order

Davy analyst Diarmaid Sheridan has said that one of the biggest turnoffs for any bank looking at the Irish market is the fact that it is difficult for lenders to enforce a repossession order on a mortgage in severe arrears.

ECB president Mario Draghi has previously said that Ireland’s high interest rate compared to euro zone peers is due to the State having a “quasi-monopoly” banking market that is “not competitive”.

Although mortgage loan interest rates were high, those on savings accounts remained low in November, at 0.04 per cent. That figure represents a decline of 0.03 of a percentage point in 12 months. Equivalent euro zone rates declined more substantially but still stood at 0.33 per cent.

In the year to the end of November, there was a 22 per cent increase in the value of mortgage agreements to €7.7 billion.