The impact of five successive European Central Bank (ECB) interest rate hikes is starting to push Irish mortgage rates higher, although they remained near their record lows at the end of last year, according to new figures from the Central Bank.
With rates rising fast, the cheapest mortgage on the Irish market by the end of 2023 is likely to be more than double what was available in the middle of last year, it has been warned.
At 2.69 per cent in December, the average interest rate on a new mortgage in Ireland was up from 2.57 per cent in November, but the increase was still smaller than the rise seen in the majority of other euro zone countries.
Ireland continues to have some of the cheapest mortgage rates in the euro zone, with borrowers in just two other countries able to avail of lower-cost loans. Malta has the lowest average rate at 1.98 per cent, followed by France on 2.12 per cent. Latvia has the highest rate at 4.65 per cent.
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The average new mortgage interest rate across the bloc stood at 2.95 per cent at the end of 2022, the highest level since at least August 2017 and more than double the average rate at the same time last year. In Ireland, by contrast, despite the slight increase in December, mortgage rates are the same as they were at the start of last year.
“These figures show once again how slow the Irish banks were to pass on the ECB rate increases initially,” Daragh Cassidy of price comparison and switching website bonkers.ie said. “However, that is now changing.
“Bank of Ireland has now raised its fixed rates by one percentage point over the past few months, while AIB has hiked some of its fixed rates by up to 1.75 percentage points and last week became the first main lender to hike its variable rates.”
He noted that the Central Bank figures related to mortgages drawn down in December, which would have been applied for and approved several weeks or months earlier.
He said anyone who applies for a mortgage today “will be faced with much higher rate options”.
“The cheapest fixed rate in the entire market is now 2.9 per cent with Bank of Ireland. However, this is a green rate and to get this you must borrow at least €250,000 and buy a property with a Ber of at least B. The average rate for a mortgage applied for today is now well over 3 per cent,” Mr Cassidy said.
He also pointed to a significant shift in pricing over recent years. “Over the past five or six years, mortgage rates in Ireland have been around 1.3 to 1.5 percentage points above the euro zone average. Whether that historical margin remains will be interesting. Or perhaps Irish rates will finally be similar to euro zone rates, albeit at a much higher level,” he said.
“Looking forward, things don’t look great for those on trackers, variable rates or who are looking to buy over the coming months. The ECB is almost guaranteed to hike rates by another half percentage point when it meets in March and by another quarter percentage point before the end of summer. This will take the main ECB lending rate to 3.75 per cent and will mean that yet more rate increases from all the lenders are guaranteed over the coming months.”
He pointed out that until the middle of last year, it was possible to get a mortgage in Ireland with an interest rate as low as 1.9 per cent. “By the end of this year, the cheapest rate is likely to be over 5 per cent,” he warned.
Responding to Wednesday’s data from the Central Bank, Brokers Ireland said consumers are wisely locking into fixed interest rate mortgages for longer periods, with 92 per cent of new mortgage applicants opting for fixed rates.
Rachel McGovern, director of financial services at Brokers Ireland, said that “for the foreseeable future, given the unequivocal messages coming from the European Central Bank, the only way is up in terms of interest rates. The organisation has made it quite clear it is not going to stop at a further interest rate rise next month.
“And the only factor that could potentially change that is if we were to see something of a dramatic drop in inflation – and it’s difficult to see that right now.”
