Monthly mortgage repayments for Irish borrowers rose by 12 per cent in the two years to the end of June, even before the European Central Bank (ECB) started to hike official rates, according to new figures from Banking & Payments Federation Ireland (BPFI).
The median monthly repayment for first-time buyers rose by more than €110 to €1,020, while, for people moving homes, it increased by over €150 to €1,361 over the two years.
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The rise in payments was driven by increases in the first half of this year, according to figures. This period corresponded with non-bank lenders – ICS Mortgages, Finance Ireland and Avant Money – which had offered among the most attractive mortgage rates, increasing rates on certain products as their own funding costs spiked in anticipation of ECB rate hikes.
The three non-bank lenders were also the first mortgage lenders to increase rates after the ECB started raising official borrowing costs in July.
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Fixed-rate loans
The ECB’s main lending rate has jumped to 2 per cent from zero since then and is expected by economists to rise by a further half a percentage point when ECB policymakers meet next month.
AIB and Bank of Ireland have also moved in the past five weeks to pass on some of the ECB increases across new fixed-rate loan products. Permanent TSB announced increases in mortgage rates on Friday. In general, banks have not increased rates at anything close to a similar pace for deposits.
“In the face of rising residential property prices and wider increases in the cost of living in the first half of 2022 and higher European Central Bank interest rates in the second half, there is understandably an intense focus on mortgage repayments at present,” said Brian Hayes, chief executive of BPFI.
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“One way to reduce [monthly] payments is to look for longer loan terms, particularly for first-time buyers as they are much younger than movers. Interestingly, however, there is no evidence of this,” he said, “as latest data which show that the share of first-time buyer mortgages with loan terms of 35 years in [the first half of] 2022 was 26 per cent, and this share has been stable between 22 per cent and 28 per cent since 2015.”
Deposit size
Another option to reduce payments is to maximise the size of the deposit put down on a home purchase, in order to minimise the amount borrowed, he said.
The latest data show that between January 2020 and June 2022, almost one-fifth of first-time borrowers and nearly two-fifths of those moving homes borrowed less than they could have under the Central Bank loan-to-value and loan-to-income lending limits.
“It is clear that borrowers are considering both how much they are permitted to borrow but how much they can afford to borrow and how they can minimise the costs,” he said. “We also encourage customers to review their eligibility for the government schemes available to first-time buyers, such as Help to Buy or the First Home Scheme.”
Irish home prices rose by 10.8 per cent in the 12 months to September, according to Central Statistics Office figures published on Wednesday. Prices in Dublin increased by 9.4 per cent, while those elsewhere in the State were 11.9 per cent higher.
The BPFI report said first-time buyers or those building new properties accounted for only 13 per cent of new mortgages in Dublin in the first half of this year, the lowest share of any region in the State.
