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Mortgage Interest Rate Types in Ireland

Author

Listed:
  • Kelly, Robert

    (Central Bank of Ireland)

  • Lyons, Paul

    (Central Bank of Ireland)

  • O'Toole, Conor

    (Central Bank of Ireland)

Abstract

This letter profiles interest rate types across the Irish mortgage market. We attempt to answer the following questions: (1) what interest rate types were contracted between borrowers and banks at loan origination and how have these evolved over time? (2) for each distinct interest rate type, are there differences in the loan and borrower characteristics and did these change over the credit cycle? and (3) how do mortgage burdens of households differ across interest rate types?. We find that the choice of fixed rate loans at origination is greater for younger, first time borrowers. The fixed rate is typically less than 5 years with 81 per cent transitioning to variable rates after the expiry of the agreed fixed rate term. In comparison, loans originating on variable contracts exhibit a low propensity to change rate type. A special variable rate with fixed margin over a reference rate ("Tracker") dominates the mortgage market at the height of the boom with the largest loans and greatest proportion of self-employed borrowers. Since Tracker loans have benefited most from the low interest rate environment, we analyse if there are differences across rate type in terms of mortgage servicing costs. We find while Tracker loans are associated with lower median installments, differences vis-a-vis fixed and SVR installments vary by mortgage origination year and current house prices.

Suggested Citation

  • Kelly, Robert & Lyons, Paul & O'Toole, Conor, 2015. "Mortgage Interest Rate Types in Ireland," Economic Letters 09/EL/15, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:09/el/15
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    File URL: https://centralbank.ie/docs/default-source/publications/economic-letters/economic-letter---vol-2015-no-9.pdf?sfvrsn=10
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    References listed on IDEAS

    as
    1. McCarthy, Yvonne & McQuinn, Kieran, 2013. "Credit conditions in a boom and bust property market," Research Technical Papers 08/RT/13, Central Bank of Ireland.
    2. Yevgeny Mugerman & Moran Ofir & Zvi Wiener, 2016. "How Do Homeowners Choose Between Fixed and Adjustable Rate Mortgages?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-21, December.
    3. Hallissey, Niamh & Kelly, Robert & O'Malley, Terry, 2014. "Macro-prudential Tools and Credit Risk of Property Lending at Irish banks," Economic Letters 10/EL/14, Central Bank of Ireland.
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    1. McIndoe-Calder, Tara, 2017. "Debt giveth and debt taketh away: mortgage debt burdens in Ireland," Economic Letters 11/EL/17, Central Bank of Ireland.
    2. Fahy, Mike & McQuinn, Kieran & O Toole, Conor & Slaymaker, Rachel, 2018. "Exploring the implications of monetary policy normalisation for Irish mortgage arrears," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    3. 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.
    4. McQuinn, Kieran & O’Toole, Conor & Allen-Coghlan, Matthew & Economides, Philip, 2019. "Quarterly Economic Commentary, Spring 2019," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC.

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