MEPs urge Mario Draghi to investigate high Irish mortgage rates

Irish MEPs have written to European Central Bank president Mario Draghi urging the ECB chief to open an investigation into Irish variable mortgage rates, amid growing concerns that Irish consumers are paying above the euro zone average.

In a letter to the ECB president signed by all 11 of the Republic's members of the European Parliament, MEPs call on Mr Draghi to investigate why certain banks are not passing on the main ECB refinancing rate to customers.

“The average standard variable mortgage rate in Ireland is 3.6 per cent... Some banks still charge over 4 per cent for a standard variable mortgage product. This is despite the fact that the ECB’s main refinancing rates for banks is now 0 per cent,” the letter states, quoting Central Bank of Ireland statistics.

Noting that the average variable mortgage rate in the euro zone is 2 per cent, it continues: “This demonstrates that Irish banks are overcharging their customers significantly compared to other European banks and are not accurately reflecting the refinancing rate that the ECB has set.”

Deposits

The letter also notes that, in contrast, when it comes to deposit saving products, Irish banks are reflecting the low ECB rates by offering customers very low deposit savings rates.

Fine Gael MEP Brian Hayes, who has been highlighting the mortgage rates being charged to Irish customers compared to other euro zone countries, said that the issue should be examined by the ECB.

“It is very welcome that all Irish MEPs have signed this letter which asks president Draghi to investigate why Irish variable mortgage rates are so high compared to other euro zone countries,” he said.

“We need the ECB to look at this issue as Irish banks do not seem to be passing on the current low interest rates which the ECB have set.”

While around half of Irish mortgage holders are on tracker mortgages with a rate of 1 per cent, around a third of the market is susceptible to changes in the standard variable rate.

Competition

The Irish Consumers’ Association has previously highlighted the fact that above-average interest rates for standard variable mortgages are being charged by Irish banks, a practice that is perceived to be a result of insufficient competition in the Irish mortgage market.

In their letter sent to the ECB president, Irish MEPs point out that only six main players operate in the Irish banking market, all of whom charge similarly high rates for variable mortgages and offer similarly low deposit saving rates.

ECB rates have been at historic lows since the onset of the financial crisis. At the ECB’s latest rate-setting meeting earlier this month in Frankfurt, ECB president Mario Draghi kept the bank’s main interest rate at 0 per cent and its deposit rate at -0.4 per cent.

Irish Central Bank governor Philip Lane earlier this week dismissed calls for a limit on mortgage rates arguing that any legislation to curtail interest rates could deter potential market entrants.