Fixed rate mortgages best for Ireland - Brian Hayes

Long-term mortgage rates could be the answer to Ireland's "dysfunctional" mortgage market Brian Hayes MEP said on Thursday.

Arguing that the Irish mortgage market “is extremely dysfunctional and lacks fairness”, Mr Hayes said that Irish variable rate mortgage holders are still being “fleeced by the banks” to pay for losses on tracker mortgages.

Rates are on a downward trend; earlier this week AIB cut its standard variable rate mortgage by 25 per centage points to 3.4 per cent and KBC Bank cut its variable rate to 3.2 per cent. However, Irish mortgage rates remain considerably higher than rates across Europe. As of December 2015 for example, the typical new business rate on an Irish variable rate mortgage was 3.76 per cent, according to Central Bank figures, compared with a euro zone average of just 1.99 per cent.

One way of addressing the discrepancy Mr Hayes says, is to introduce long term fixed interest rate mortgages.

“What is astonishing to me is that it’s possible to get 20 year fixed mortgage products in the US and in other European countries for 3 per cent or less. In Belgium, I can go into a KBC bank and get a 20 year fixed interest mortgage for 3.15 per cent. In 2015 in France, you could get a 20 year fixed interest mortgage for 2.4 per cent. These rates are so low because the current ECB interest rate is so low. In France and Belgium, the banks are clearly passing on the benefits of lowers rates to consumers. In Ireland we are still being overcharged,” he said.

At the moment Bank of Ireland is the only Irish bank to offer a 10 year fixed interest mortgage product, but this has a rate of 4.4 per cent.

Mr Hayes suggests that the new government should work with banks, regulators and other institutions to pave the way for long-term fixed interest mortgages at competitive rates.

"It should be examined whether the National Housing Finance Agency can be used as a vehicle for providing such mortgages by raising funds on the international markets at low rates," he said, adding that credit unions could also have a role.

“The government should prioritise getting long-term fixed interest products to market. This would force existing players to reduce rates and become more competitive.”

Meanwhile speaking at an event in Cork on Wednesday, Bank of Ireland chief executive Richie Boucher hinted that a cut in the bank's top rate standard variable rate of 4.5 per cent may not be on the cards, as he reiterated the bank's commitment to fixed rates, arguing that the bank doesn't take interest rate risk and the Irish market is vulnerable to variable rates.

Some two thirds of all the bank’s new mortgage business is now on fixed rate products.