Irish mortgage interest rates have increased in January, according to new figures from the Central Bank. The average interest rate on a new mortgage was 2.93%, up from 2.69% in December, which is the highest level since October 2019. However, despite the increase, Ireland still has among the cheapest mortgage rates in the eurozone, with only France and Malta recording lower rates in January. The eurozone average is now 3.16%, more than double the rate this time last year.
Daragh Cassidy, of independent price comparison and switching site Bonkers.ie, stated that interest rate hikes by the European Central Bank (ECB) are finally beginning to emerge in Irish mortgage rates. Initially, the banks were slow to pass on the ECB rate hikes, but this is now starting to change. Cassidy expects that the average rate will increase significantly over the next few months. He anticipates that Permanent TSB, AIB, and BoI will all come under significant pressure in the weeks ahead to improve their savings rates.
Permanent TSB has hiked its fixed rates for the third time since November. This leaves many of its rates for the average first-time buyer at over 4.5%. Customers with an offer letter who draw down their mortgage by June 2 can avail of the existing rates. The bank’s two-year fixed rate for those with a 10% deposit will now be 4.6%. And its seven-year fixed rate for those with a similar-sized deposit will be 4.9%. PTSB’s lowest fixed rate remains its four-year rate for those with at least a 40% deposit, which is now 3.9%. However, this time last year, the rate was just 2.05%.
For someone borrowing €300,000 over 30 years, the latest increase will add about €130 to monthly repayments. Cassidy stated that even after this latest increase from PTSB, its third since November, it has only passed on just over half the recent ECB rate increases. He expects that PTSB, along with AIB and BoI, will all come under significant pressure in the weeks ahead to improve their savings rates. Looking forward, things do not look great for those on trackers, variable rates, or people who are looking to buy over the coming months.
Two weeks ago, the ECB decided to raise rates by another half a per cent, despite calls from some commentators to hold off in the face of turmoil in the banking sector. The move was a clear sign that the bank is determined to get on top of inflation, which continues at high levels. Cassidy expects at least another quarter of a per cent rise before the summer is out. He says, “This will take the main lending rate to 3.75%, though it looks increasingly likely that it will go even higher. This means yet more rate increases from all the lenders are guaranteed over the coming months.”
“Up until the middle of last year, it was possible to get a mortgage rate as low as 1.90% in Ireland — albeit with several caveats. By the end of the year, the cheapest rate is likely to be over 5%, with the average rate even higher. The impact this will have on affordability will be huge,” Cassidy said.
Trevor Grant, of the Association of Irish Mortgage Advisors, points out that against a backdrop of rising rates, protecting themselves against future interest rate increases has become a priority for variable, tracker rate mortgage holders, and for fixed-rate customers whose current fixed rate agreement is due to expire within the next 12 months or so. He advises that reviewing mortgage options is crucial for those on a fixed, variable, or tracker mortgage. There is still good value on offer from lenders, but the timeframe in which to capture this value appears to be getting smaller and smaller.
As interest rates increase, lenders continue to offer incentives to sweeten the deal. For instance, Permanent TSB is offering 2% of the entire mortgage back in cash, while Bank of Ireland is offering up to 3% cashback. And AIB offers a discount on home insurance for the first year, as well as free day-to-day banking if you pay your AIB mortgage from an AIB current account. Offers such as these are certainly worth considering, and it’s particularly easy to understand the lure where cashback is concerned.
According to the Banking & Payments Federation Ireland, the average first-time buyer loan is about €270,000. If you were to take out a €270,000 mortgage with BoI, the 3% that you would get back in cash would give you €8,100 in total (€5,400 upfront and €2,700 after five years if you have a BoI current account), which is certainly nothing to be sniffed at. However, Cassidy warns that the impact of the rising interest rates on affordability will be huge, and buyers need to consider whether they can afford the higher repayments or whether house prices will fall instead.
In conclusion, Irish mortgage interest rates have increased in January, and this trend is expected to continue over the coming months. Cassidy anticipates that all the lenders will come under significant pressure to improve their savings rates. As interest rates increase, protecting oneself against future interest rate increases has become a priority for variable, tracker rate mortgage holders, and for fixed-rate customers whose current fixed rate agreement is due to expire within the next 12 months or so. Reviewing mortgage options is crucial for those on a fixed, variable, or tracker mortgage. Offers from lenders such as cashback are worth considering, but the impact of the rising interest rates on affordability will be significant, and buyers need to consider their options carefully.