Mortgage rates fall in Ireland, bucking trend across the Eurozone

And the gap between rates in Ireland and the rest of Europe has closed over the past few months.

But rates here are still among the highest in the 19 countries that make up the Eurozone.

And interest rates are set to rise across the currency zone next week when the European Central Bank hikes its lending rates for the first time in more than a decade.

The average rate on a new mortgage in this country was 2.73pc in May, according to the Central Bank of Ireland. This is the second highest to Greece in the 19-country Eurozone.

It is down from 2.77pc in April.

Ireland was also the only country to where mortgage rates fell in May.

All other countries saw a rise in their average rate, with rates doubling in Germany in the last year.

The Eurozone average is 1.76pc, its highest level in over three years.

This is up from 1.27pc in May of last year.

By contrast, the average Irish mortgage rate has fallen seven basis points compared with May last year.

There has been mixed news on the mortgage front at home in recent months.

Permanent TSB, Bank of Ireland and EBS all reduced some of their rates, while ICS Mortgages, Avant Money and Finance Ireland have increased some of theirs.

Daragh Cassidy, of price comparison site Bonkers.ie, said the figures showed the peculiarities of the Irish mortgage market.

“Rates here have been wildly out of kilter with the rest of the Eurozone for years.

“That continues, but this time it’s more positive. As rates have been increasing significantly in some countries over the past few months they’ve largely been static here.”

He said that rates had almost doubled in Germany over the past year, to 2.26pc.

The European Central Bank has signalled it will raise its key lending rates, with an announcement expected next week.

Two rises of 0.25pc have been indicated, but a rise of 0.50pc in September could be implemented if high inflation persists.

This is likely to affect about 450,000 people who have a tracker or variable rate. And it will mean future fixed rates will become more expensive.

Each 0.25pc rise in the ECB rates will cost €30 more in monthly repayments for a €250,000 tracker mortgage.

Irish mortgage rates are so out of kilter with the ECB base rate that we could see a small increase in the ECB rate not being passed on to consumers, Mr Cassidy said.

It will depend on the competitive pressures the banks feel under.

Permanent TSB boss Eamonn Crowley said last month he felt the bank, as well as the other Irish retail banks, had the capacity to absorb the initial round of ECB rate hikes.

The average first-time buyer mortgage in Ireland is around €270,000.

This means someone borrowing this amount over 30 years is paying around €131 extra a month compared with our European neighbours.

Banks in this country defend the higher mortgage rates on the basis that mortgage lending in Ireland is considered risky, partly because banks have difficulty enforcing security if a loan goes into arrears.

This means Irish banks must hold around three times the level of capital to safeguard against potential loan losses compared to banks in the rest of Europe.