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karhu

Irish Mortgages: Pain On The Way

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In the summer of 1993, I attended a wedding in France. It was in the aftermath of the currency crisis when interest rates in Britain and Ireland had soared to double-digit levels, causing panic for many mortgage holders. A French businessman asked me to explain why the British newspapers had been screaming about the plight of hard-pressed borrowers struggling with ballooning monthly mortgage repayments as interest rates soared.

Why, the businessman asked, were British consumers borrowing at variable interest rates instead of long-term fixed rates?

The simple answer, I explained, was that long-term fixed-rate mortgages were not generally available in Britain and Ireland.

The Frenchman expressed his amazement before shrugging his shoulders in a manner that suggested he considered this another example of Anglo-Saxon lunacy.

Fast forward 13 years. Interest rates are on the rise again. But as interest rates pick up, the pain will not be spread equally across the European Union.

The sensitivity of Irish mortgage holders to rising interest rates will be far greater than for many other EU citizens because the vast majority of Irish borrowers - about 75 per cent - have variable mortgage rates, while the majority of continental borrowers - especially in France and Germany - have long-term fixed rate mortgages at rates that are far lower than the fixed-rate mortgages available here. In other eurozone countries, mortgages may be at variable rates, but they are capped.

That means that most Irish mortgage holders will feel the pain of each interest rate hike keenly, while their continental cousins can sit back and relax, as interest rate hikes there don’t really affect existing mortgage holders.

The corollary of this disparity between the two markets is that the ECB needs to put up rates higher and faster to have an impact on inflation on the continent that would be the case here.

Of the Irish consumers who do fix their mortgages, most fix for periods of three years or less. Irish consumers don’t generally go for long-term fixed rate mortgages for a variety of reasons - partly because there are few such products on offer, and partly because the ones on offer are considered too expensive relative to variable rate products.

Last week, ten-year fixed rate mortgage deals in Ireland were priced at about 4.6 per cent. Generally speaking, Irish banks do not market longer-term fixed-rate mortgages, though Bank of Ireland said it offered a 20 year fixed-rate product at 5.2 per cent.

Our long-term fixed-rate mortgages are far dearer than in France, where, last week, you could get a 15-year fixed-rate mortgage at 3.25 per cent, a 20 year fixed-rate mortgage at 3.4 per cent or a 25-year fixed-rate mortgage at 3.55 per cent, according to the French website www.meilleurtaux.com, which analyses the best rates available on the market.

A spokeswoman for Bank of Ireland said longer-term fixed rate borrowing was less popular here because, culturally, people didn’t plan ahead and they took a short-term view about what their mortgage is costing them today rather than looking at it in terms of a life long commitment.

‘‘They are afraid to lock in to a longer term fixed-rate in case they lose out.”

http://www.thepost.ie/post/pages/p/story.a...2504-qqqx=1.asp

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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