Variable Mortgage Rate Pricing in Ireland
AbstractThis Letter examines movements in the interest rates charged on variable rate mortgages. The results indicate that variable rates for all lenders closely followed changes in the ECB's policy rate, short-term wholesale rates and tracker rate mortgages until the end of 2008. Thereafter, the relationship breaks down, in part due to banks' increased market funding costs. It appears that some lenders with higher mortgage arrears rates and a greater proportion of tracker rate loans on their books exhibit higher variable rates. After controlling for these additional factors, most of the divergence between banks variable rates is explained, but there are some exceptions. There is also some evidence of asymmetric adjustment in rate setting behaviour: that is, rates tend to adjust slowly when they are above the long-run predicted level but more quickly when they are below this level. This asymmetric adjustment behaviour appears to increase in the post-2008 period.
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Bibliographic InfoPaper provided by Central Bank of Ireland in its series Economic Letters with number 02/EL/12.
Date of creation: Jan 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-BAN-2012-11-24 (Banking)
- NEP-PBE-2012-11-24 (Public Economics)
- NEP-URE-2012-11-24 (Urban & Real Estate Economics)
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- McCann, Fergal & McIndoe-Calder, 2012. "Bank Competition Through The Credit Cycle: Implications For SME Financing," Economic Letters 04/EL/12, Central Bank of Ireland.
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