Covid fallout leads to renewed fears of mortgage interest rate increases
The threat of a rise in bad consumer loans in the aftermath of the Covid-19 crisis could lead to an increase in mortgage interest rates, or at the very least a halt to the downward pressure seen in recent times, according to one consumer commentator.
“Banks are also still dealing with the cost issues around bad loans on their books from the last financial crisis and the fear is that the Covid-19 pandemic is going to worsen this problem, leading to upward pressure on rates again in the near future," said Daragh Cassidy of price comparison website Bonkers.ie.
Mr Cassidy was speaking on the back of latest monthly Central Bank figures showing that due to the unprecedented disruption caused by the Covid-19 pandemic, consumer lending levels in Ireland fell by €119m on a monthly basis to hit an historic low of €64m in April.
Factored into the decline was a 40% month-on-month drop in new mortgage lending to €407m.
However, the Central Bank figures show that Ireland still has the third-highest mortgage interest rates in the eurozone. Average rates here stood at 2.78% in April. Although this was marginally down on the previous month, it still was well above the eurozone average of 1.29%.
It means that first-time buyers in Ireland are paying almost €170 more on their mortgage, per month, than those in other parts of the eurozone.
“For all the talk of falling interest rates and a mortgage price war in recent months, mortgage rates in Ireland still remain hugely elevated compared to our eurozone neighbours,” said Mr Cassidy.
He said more competition is needed in the Irish mortgage market.
“There is still a lack of competition in the Irish mortgage market as it remains heavily concentrated in the hands of a few main banks; namely AIB and Bank of Ireland, who have a duopoly-like grip on the market. And although competition has improved in recent times, particularly due to KBC and Ulster Bank continually reducing their rates, it's still below where it needs to be," he said.
"Mortgage holders in Ireland have traditionally been slow to move lenders in order to get the best value – which could be down to a general lack of awareness of mortgage switching. Fortunately, this is changing, and switching activity, in the main, is increasing," according to Association of Irish Mortgage Advisors CEO Trevor Grant.
