Mortgage Rates Take a Dip, but Brace Yourself for the Inevitable Hike!

Irish Mortgage Rates See Minor Dip in February, but Lenders Expected to Raise Rates Soon, says Central Bank

Mortgage interest rates in Ireland saw a slight drop in February, but further hikes from lenders are “almost guaranteed” in the coming months, according to new figures from the Central Bank of Ireland. The average mortgage interest rate in the country is now at 2.92%, down from 2.93% in January, which was a three-year high. The average interest rate on new fixed-rate mortgages, which make up 93% of all new mortgages, was 2.83%.

Despite the drop, Ireland still has the third-lowest average rates in the eurozone, behind only Malta and France. Ireland and Malta were the only countries to see rates fall on a month-to-month basis. The eurozone average now stands at 3.33%, up from 3.16% in January. Latvia has the highest rates in the eurozone at 5.31%, followed by Estonia at 5.06%, and Lithuania at 4.92%.

However, Ireland’s low ranking is not due to cheaper rates but rather because rates in other eurozone countries have become more expensive. In October 2019, when rates were last this high, Ireland had among the highest mortgage interest rates in Europe, behind only Greece.

Darragh Cassidy, of mortgage broker, warned that the latest data is based on mortgage drawdowns that were applied for several months ago, and anyone applying for a mortgage now will face “much higher rates”. Cassidy added that the European Central Bank (ECB) is likely to hike rates again next month, which means more hikes from all lenders are almost guaranteed in the coming months. Cassidy also noted that the figures only take into account mortgage drawdowns from AIB, Bank of Ireland, and Permanent TSB, with non-bank lenders excluded. If non-bank lenders were included, he said the average rates would be higher.

Since the end of February, EBS, Permanent TSB, and Bank of Ireland have all increased their rates on fixed-rate mortgages. EBS and Permanent TSB increased rates by 0.75%, while Bank of Ireland increased theirs by 0.5%. ECB’s chief economist, Philip Lane, has already signaled that more increases are likely to be implemented following their meeting on May 4. Another increase of 0.25% is expected.

Cassidy said the data shows how slow the banks have been at passing on the ECB rate hikes to customers. “Since last July, the ECB has hiked rates by 3.5%. However, the main banks have only hiked their fixed rates by around 1.5% to 2% on average. Variable rates have hardly moved at all,” he said. Cassidy also said the slow movement on interest rates from the banks comes at the expense of savers whose interest rates are “miserable”. “In essence, savers are now heavily subsidizing mortgage holders,” he said.

In February, the total volume of new mortgages in Ireland came to just over €1bn, a 40% increase compared to January and an increase of 69% compared to February 2020.

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