New Research on Mortgage Interest Rates 

Press Release 26 January 2012

The Central Bank of Ireland today publishes new economic research on ‘Variable Mortgage Rate Pricing in Ireland’. The research examines movements in the interest rates charged on variable rate mortgages over the last number of years.

The key findings of the research are as follows:

  • Variable rate mortgages, the most common of which is the Standard Variable Rate or ‘SVR’, account for approximately one-third of outstanding loan balances and one-half of outstanding loans by number.
  • Since early 2009, the bulk of new mortgage lending has been on (standard) variable rates.  By contrast, at the peak of the recent property boom, over three-quarters of new lending was on tracker rates.
  • Variable rate loans tend to be older vintage loans (i.e. many pre-2000), with smaller loan balances.  For example, the average balance on an owner-occupier variable rate mortgage at end-2010 was €90,000, or around half the average balance on a tracker mortgage.
  • Currently, the average interest rate on variable rate loans is just under 2 per cent higher than the average interest rate on tracker loans.  This varies considerably across banks and is as much as 3 per cent for some lenders.  Up to end 2008, the difference was almost zero between variable and tracker rates.
  • The research shows that the following factors explain the increase in variable rates in recent years, compared to tracker rates:
    • Higher funding costs
    • Less competition
    • More margin pressure due to higher credit risk costs. It appears that some lenders are charging higher variables rates to compensate for higher arrears and the losses they are making on their tracker loans.