Mortgage Interest Rate Types in Ireland

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.