Cantillon: Banks grudgingly cut some interest rates

Mortgage holders are beginning to get benefits from the low interest rate environment, but the cuts have been slow coming and the banks are still fighting to hold on to their profit margins – and customers.

Bank of Ireland moved on Monday, but its cuts were solely for fixed-rate mortgage deals, not in its standard variable mortgage rate. It has made the new rates available to existing variable rate customers, so at least existing borrowers get a chance to benefit. But to do so they must lock in for at least one year, and there is no significant premium for locking in for even longer periods of up to five years, especially for customers with lower LTV's.

The decision for customers is whether the longer term fixed rates offer value. Bank of Ireland’s standard variable rate has been and remains above many others in the market, but the new fixed rates are competitive. The question is whether lower rates will be available in future.

There is talk of more action by the ECB to pump money into the euro zone economy and a prolonged period of very low rates, but how this feeds through to customers here is hard to predict. Competition may edge rates lower, but it will continue to be a slow process.

Standard variable mortgage rates here remain above the euro zone average. The latest Central Bank figures show the average rate has fallen to 3.76 per cent from 4.2 per cent six months ago. This is still well above the euro zone average of 1.99 per cent.

The banks will complain that the Irish market is different, for example because it can be hard to act against bad loans. This may be true, but the margins here still look juicy and cuts in borrowing rates have been more or less matched by a continued edging down in rates paid to depositors.

For borrowers, it all at least means that there should be no nasty surprises coming. Our economy could be vulnerable when interest rates do rise, but the day when that will happen still looks well off into the future.