Irish mortgage rates for new business now among the lowest in the eurozone

[NoRegretsCoyote]

Euro area rates (orange line) in September were identical to Ireland's (blue line) at 2.59%.

This is for new business one- to five-year fixing.

The recent rate hikes by AIB and the non-bank lenders clearly haven't fed through, but the fact that BoI and ptsb still aren't increasing means that the average won't go up by very much.

 

[NoRegretsCoyote]

By the end of 2022 Ireland is likely to have the lowest mortgage rates in the euro area bar France.

AFAIK in France new loans are capped to the rate charged on the existing stock to some extent.

 

[ClubMan]

AFAIK in France new loans are capped to the rate charged on the existing stock to some extent.

I seem to recall the unusual (?) rate smoothing/capping technique used in France being discussed here on AAM several years back alright.

 

[NoRegretsCoyote]

I seem to recall the unusual (?) rate smoothing/capping technique used in France being discussed here on AAM several years back alright.

It looks like the French system is going to be changed according to this as a lot of lending isn't viable given the hike in market rates.

 

[NoRegretsCoyote]

Irish mortgage rates are now among the lowest in Europe.

Mortgage rates in Ireland (2.53%) October now well below the euro area average of 2.83%.

Only Malta, Luxembourg, and France are now below Ireland. See here. Of the big countries: Spain (3.16%), Germany (3.23%), Italy (3.21%)

 

[demoivre]

What's changed?
The reasons often cited for the higher rates here compared to the rest of the EU were defaulting borrowers and the difficulty obtaining repossession orders. Is that no longer the case?

 

[NoRegretsCoyote]

What's changed?

It seems Irish banks are more funded by deposits than European banks (or indeed non-bank lenders in Ireland).
Deposit rates still close to zero so no pressure to increase margins.

 

[murphaph1]

Our mortgage advisor here in Germany (who is family) was telling us that he doesn't even waste his time meeting people to discuss finance for new builds because the moment he tells people how much their monthly repayments will be they know they can't afford to proceed and will be remaining in their rented accommodation for the foreseeable. He just gives them the rough figure on the phone now instead and they themselves end the conversation there. He sells other products, mainly the old fashioned Bausparverträge (building savings contract, where you are given a guaranteed mortgage rate for some point in the future and you commit to save up to a minimum amount over the years in the meantime). These traditional instruments had fallen out of favour more recently as more Germans simply took out repayment mortgages as interest rates were persistently low but the old ways are coming back as interest rates climb.

 

[ryaner]

Irish mortgage rates are now among the lowest in Europe.

Mortgage rates in Ireland (2.53%) October now well below the euro area average of 2.83%.

Only Malta, Luxembourg, and France are now below Ireland. See here. Of the big countries: Spain (3.16%), Germany (3.23%), Italy (3.21%)

I know the graph is lagging slightly, but Ireland showing no increase despite all the providers increasing rates over the last number of months feels wrong. It just says the CBI is reporting the data and the latest I can find there is from September and that does show an increase.

 

[skrooge]

I know the graph is lagging slightly, but Ireland showing no increase despite all the providers increasing rates over the last number of months feels wrong. It just says the CBI is reporting the data and the latest I can find there is from September and that does show an increase.

One thing to note is the CBI data only covers banks. So would exclude the rate increases from the likes of Avant and ICS. I think AIB were the first of the banks to increase rate and that only happened in October. Even then the higher rates weren't effective until November.

The document you link to says the average rate here declined (marginally) in September. Fixed rates down and variable rates up slightly. The overall small decrease probably reflects changes in borrower preferences rather than actual changes in rates.

 

[NoRegretsCoyote]

It just says the CBI is reporting the data and the latest I can find there is from September and that does show an increase.

It's for one to five year fixed rates, new business.

When I have time I'll do some comparisons of other terms and for existing business.

For other types of business I think comparisons can be difficult as the products on offer differ a lot from country to country.

 

[Mark Coan]

BoI, AIB and PTSB have definitely been cautious in passing on rate increases to their non tracker customers so far, which is what we are seeing in this data.

Does anyone have a clear sense of what driving the 'pillar banks' hesitancy in increasing both their fixed and variable rates?

It's a good thing, but I'm not really sure what is really going on and would be interested if anyone had any theories. My suspicion is that the lack of increases is temporary, but maybe I'm missing something?

 

[skrooge]

BoI, AIB and PTSB have definitely been cautious in passing on rate increases to their non tracker customers so far, which is what we are seeing in this data.

Does anyone have a clear sense of what driving the 'pillar banks' hesitancy in increasing both their fixed and variable rates?

It's a good thing, but I'm not really sure what is really going on and would be interested if anyone had any theories. My suspicion is that the lack of increases is temporary, but maybe I'm missing something?

Being predominantly funded by customer deposits in a market where banks are leaving means the financial cost of issuing new loans have not been effected by rising wholesale rates.

If we looked at the same pan-european chart for deposits we'd be close to the bottom. Throw in the fact banks are leaving and it means the 3 banks that were already awash with more deposits than they need don't need to attract funding through higher deposit rates.

In simple terms the lack of rising funding costs mean when they do put up rates it is mostly profit. In more competitive (deposit and lending) markets banks would have to increase rates more aggressively to keep/increase profit margins.

It's not that they won't increase rates but they can go about it at what appears to be a slower pace and achieve the same outcome.

 

[Mark Coan]

It could be the funds argument, but I'm not wholly convinced that the reason for the delay in passing on rates.

If banks are holding funds their treasury teams will look to get the best return on those funds from whatever source they can, both internal and external to the bank. Otherwise they aren't doing their job for the shareholders (which includes the State in come cases).

In the current market due to rising rates they should be able to get higher returns than the c3.6% they are getting from mortgages at the same or better risk profile. So the retail arm would normally be raising rates to increase their return to 'bid' for funds versus the external options.

Retail returns will be up due to the tracker increases, but it still doesn't explain why the variable rate isn't also being increased.

I think there is something else going on here, but I'm not sure what. Any other ideas?

 

[Sarenco]

Trackers still represent about 30% of the main lenders’ back book, which is unusually high relative to continental peers.

I suppose there is also an element of regaining market share from non-bank lenders.

 

[Mark Coan]

Thanks Sarenco, yes trackers are definitely part of the reason. Not sure about gaining market share from the non lenders though. With ICS & Finance Ireland effectively out of the market due to their funding costs and Ulster/KBC gone the 'pillar banks' will pick up share pretty much regardless.

BoI and AIB share is so high in fact that there may even be cause for concern around market dominance, so I doubt they want that much more share.

I still think it's very puzzling that they haven't moved yet, but good news for the 170,000 still on variable rates. If they had passed on these increases they would be on rates of around 5.5% right now based on the ECB base rate trajectory.

If there is no other reason they haven't increased rates I have to wonder whether the banks might try to 'catch up' on these increases over the next year or so. This would be bad news for variable rate customers if they don't fix before then.

 

[Gordon Gekko]

Because banks are making more from not increasing deposit rates…

 

[Merowig]

The banks make a lot of money now with having their deposits parked with the ECB. Same time they do not pass this on to their customers deposits. If they would increase the rates more for mortgages they would come under pressure to increase rates as well for their customers deposits. Because banks have lower funding costs than the non bank mortgage lenders they can undercut the latter and squeeze them slowly out of the market / regain further market share. There is no real reason for the big banks not to pursue more market share.