Irish borrowers being hit with higher rates despite ECB cuts

Irish banks have been gradually increasing interest rates on range of a products and services over the past year despite cuts to European Central Bank rates.

New figures from the Central Bank show consumers and businesses are being charged more for overdrafts and term loans as lenders seek to boost their net interest margins.

The figures indicate the average interest rate charged on personal overdrafts has gone up from 13.4 per cent to 14.3 per cent in the 12 months to July.

Similarly, rates on consumer loans of between one and five years in duration rose from 5.95 per cent to 8.01 per cent over the same period.

The cost of loans to businesses between one and five years in duration also increased from 2.81 per cent to 3.29 per cent in the past year.

Profit margins at Irish banks have been weighed down by loan loss provisions and the high number of loss-making tracker loans on their books.

The Central Bank figures show the weighted average interest rate on “outstanding” mortgages fell from 2.93 per cent to 2.73 per cent in the year to July.

The equivalent euro area rates were 53 basis points higher at 3.26 per cent.

Traditionally, mortgage interest rates here closely tracked movements in the ECB’s main refinancing rate (MRO) more than comparable euro area rates.

This reflected the higher proportion of tracker and variable rate mortgage products in the Irish market which are linked to the ECB’s rate.

However, since the crash the average Irish interest rate on outstanding mortgages has “diverged” from the ECB’s main rate.

With banks here no longer offering tracker product, the interest on new mortgage agreements stands as a better guide to the cost of borrowing for house purchases.

The figures show that with either a floating rate or initial rate fixation of up to one year, this rate rose by 14 basis points to 3.29 per cent in July, which was more in line with the average euro area rate.

The figures also show the interest rates on new household term deposits fell by six basis points to 0.59 per cent in July, which represented a year-on-year decrease of 17 basis points.

The weighted average interest rate on total outstanding household term deposits continued to fall in July to 1.89 per cent, representing a 164 basis point fall since their last increase in April, 2012.