Rising interest rates, particularly for mortgages, are a threat to Irish borrowers, but the latest figures do at least show that Irish banks are slow enough to pass on recent rises in ECB rates to Irish borrowers. This is appropriate, given that rates here have been well above euro zone norms, but it is nonetheless welcome given the limited competition in many parts of the market.
Despite the rise in ECB rates, the average rate charged on a new mortgage in Ireland was 2.58 per cent in September, down from 2.64 per cent in August. Having been at the top of the euro league of mortgage rates for years, Ireland now ranks in mid-table, though direct comparisons remain difficult due to the diverse nature of mortgage markets.
The interest rates charged to Irish borrowers will, of course, increase in the months ahead and some of the delay is due to timing. Interest rates on tracker mortgages have already increased in line with ECB rates and AIB has announced a 0.5 point rise in its fixed rate products. It is only a matter of time before the other big banks follow.
While increases are inevitable – and banks complain that regulatory rules here put an additional burden on them – there is no reason why Ireland should move back to become one of the most expensive places in the euro zone to take out a loan. To help achieve this we must hope that competition in the market remains as strong as possible – already smaller lenders have had a significant impact on parts of the market.
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Tracker mortgages have already increased in line with ECB rates, putting a significant extra financial imposition on some households. Nonetheless Sinn Féin is incorrect to seek State support for these households through a new interest relief scheme. Tracker loans were in general taken out up to 2008 – and are thus well into their term in most cases – and those on these rates have benefited from very low rates in the meantime.
More hardship is likely to be suffered by those with sizeable, newer mortgages moving out of current fixed rate products over the coming years.