Cheaper mortgages look to be on the way following the arrival of the euro, as Irish banks and building societies seek the go-ahead for a new form of fund-raising which would allow them to charge lower interest rates.
Intensive negotiations are now under way between the lenders, the Department of Finance and the Central Bank on legislative changes which would allow financial institutions here to raise funds much more cheaply in the new euro financial market. This would allow them, in turn, to offer cheaper loans to borrowers.
The lenders have been lobbying for the change which would allow them access to money at the same cost as many of the big financial institutions currently operating in the larger markets in continental Europe. This would be made possible by banks and building societies here issuing special mortgage bonds in the financial markets - essentially borrowing directly at low interest rates from the wholesale money markets across the euro zone.
Irish institutions can issue these bonds following the arrival of the euro. But if they are to do so at attractive interest rates, new legislation is required giving those investing in the bonds special protection.
According to Mr Michael Lennon, head of funding at EBS, the largest building society, this would allow Irish lenders to offer cheaper mortgages generally. "It would allow us to compete more aggressively and would give an across the board benefit to all borrowers." There would not be any impact on savers as the cheaper mortgages would be paid for through the market rather than reducing the returns to savers.
Without the required legislative changes, the Irish lenders argue they would be at a possible disadvantage if the continental lenders start "nibbling" at the market, using cheap funds to which they have access. Rheinhyp Bank, one of Germany's largest mortgage banks, has an IFSC operation here and would be well placed to enter the market here, although it has not yet decided whether to do so. According to Mr Paul Devenney, treasurer at its IFSC operation, German lenders can typically offer 10-year loans at just over 5 per cent. Currently Irish lenders would charge around 6.5 per cent for such a loan.
While it will be some time before borrowers will benefit from any legislative change, most will get an early gain from falling repayments resulting from the recent fall in interest rates.
Meanwhile, the euro is set for its debut on European financial markets today. While it started trading in Australia yesterday at around $1.17 and was also dealt in the Far East last night, a firm indication of its performance will become available only when European trading opens.
Bankers in Dublin and elsewhere in Europe said there seemed to have been no major glitches over the conversion weekend, as computer and trading systems were prepared for the new currency.
A statement from the European Central Bank said "no incidents have been reported that may impair the smooth start of the system." However, senior executives of the bank, led by president Mr Wim Duisenberg, will be closely monitoring trade today, both to ensure that there are no systems difficulties and in the hope that the new currency quickly settles into a stable trading pattern.
While banks have expressed confidence that they can adapt their own systems, once trading goes live the interaction between banks may not go so smoothly.
Today is the first day when the majority of European stocks and bonds will be quoted in euros, and no longer in pounds, marks, French francs or any other of the 11 currencies that make up the single currency.