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Variable Mortgage Rate Pricing in Ireland

Author

Listed:
  • Goggin, Jean

    (Central Bank of Ireland)

  • Holton, Sarah

    (Central Bank of Ireland)

  • Kelly, Jane

    (Central Bank of Ireland)

  • Lydon, Reamonn

    (Central Bank of Ireland)

  • McQuinn, Kieran

    (Central Bank of Ireland)

Abstract

This 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.

Suggested Citation

  • Goggin, Jean & Holton, Sarah & Kelly, Jane & Lydon, Reamonn & McQuinn, Kieran, 2012. "Variable Mortgage Rate Pricing in Ireland," Economic Letters 02/EL/12, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:02/el/12
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    File URL: https://centralbank.ie/docs/default-source/publications/economic-letters/economic-letter---vol-2012-no-2.pdf?sfvrsn=10
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    Citations

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    Cited by:

    1. Jean Cassidy, 2016. "Understanding long-term mortgage arrears in Ireland: insights from macro and micro data," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Combining micro and macro data for financial stability analysis, volume 41, Bank for International Settlements.
    2. McCann, Fergal & McIndoe-Calder, 2012. "Bank Competition Through The Credit Cycle: Implications For SME Financing," Economic Letters 04/EL/12, Central Bank of Ireland.
    3. Chris Stewart & Benn Robertson & Alexandra Heath, 2013. "Trends in the Funding and Lending Behaviour of Australian Banks," RBA Research Discussion Papers rdp2013-15, Reserve Bank of Australia.

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