Mortgages rates still twice eurozone average

The average interest rate charged by Irish banks fell by 28 basis points over the past year but is still nearly twice the eurozone average, according to figures released by the Central Bank.

The weighted average interest rate on new mortgage agreements was 3.38 per cent last November, 28 basis points lower than the same month the previous year. The equivalent euro area rate was 1.72 per cent.

New variable rate mortgages accounted for two thirds of all new agreements in Ireland over the past year, according to the Central Bank. In the euro area the figure was less than one quarter.

The volume of new mortgage agreements was €548 million in November, bringing new agreements to €4.9 billion over the previous 12 months.

Data supplied by the Central Bank shows that the biggest drop in rates was for variable rate mortgages, which fell by 49 basis points to 3.47 per cent over the 12 months to the end of September.

Fixed-rate mortgage rates also declined, with rates fixed for one to three years falling by 23 basis points over the same period.

New variable buy-to-let mortgage rates declined by 20 basis points over the year to the end of September to 4.73 per cent. Fixed-rate buy-to-let mortgages rose by 43 basis points to 4.84 per cent over the period, however. The majority of buy-to-let lending is at variable rates, which accounted for more than 90 per cent of new lending in the third quarter.

Renegotiated mortgages totalled €373 million in November, with variable rate products accounting for the majority of renegotiations. The weighted average interest rate for renegotiated mortgages was 3.05 per cent in November.

The chief executives of Irish banks have been brought before the Oireachtas several times to explain the higher interest rates charged on mortgages compared with the rest of the eurozone. The banks have cited high levels of mortgage arrears and difficulties in enforcing the security on defaulted mortgages.

Michael Noonan, the finance minister, has said that the most effective way of reducing rates is by increasing competition in the market. He has criticised the bill introduced by Michael McGrath, the Fianna Fail finance spokesman, which gives the Central Bank the power to cap interest rates.

Mr Noonan has said that this will ultimately deter new entrants to the market.

Interest rates on new household term deposits remained subdued last November at 0.13 per cent, the Central Bank said. This represented a 5 basis point decline over the past 12 months for depositors. Equivalent euro area rates had a slightly larger decline of 21 basis points over the same period but remained higher at 0.46 per cent.