The European Central Bank (ECB) has increased interest rates eight times in the past year, bringing its base lending rate to 4%. There are speculations of a further 0.25% rise when the ECB meets later this month. However, there are mixed opinions among delegates regarding this decision. While ECB President Christine Lagarde and Belgian Governor Pierre Wunsch seem to support a rate increase in September, delegates from Italy, Spain, and Portugal are more cautious. ECB Chief Economist Philip Lane believes it is too early to make a call on further rate rises.
These rate increases have had an impact on mortgage holders, who are seeking certainty around their repayments. The Central Bank’s latest report on mortgage arrears, up until the end of March, revealed a rise in early arrears of up to 90 days, totaling 3,639 cases. Although 1,300 of these cases were due to a “reclassification,” the trend is concerning. Moreover, these figures do not account for the rate increases since March.
To fully understand the impact of these rate rises, let’s examine the numbers. There are approximately 171,000 tracker mortgage customers with an average balance of €133,000 over an 11-year term. The average tracker rate is 1.15% above the ECB rate, resulting in tracker interest rates of 5.15%. Including the anticipated rate increase in July, tracker mortgage holders will see their annual repayments increase by €3,000.
For those with fixed-rate mortgages, there are around 71,000 mortgage holders whose fixed rates will expire this year. They can expect rate increases ranging from 2% to 2.5%, adding an extra €3,540 to their annual repayments. Approximately 60% of the market, or 430,000 mortgage customers, have longer-term fixed rates and will be partially shielded from the impact of rate rises as their fixed terms will not expire during this cycle of interest rate increases.
However, there are 60,000 mortgage holders who are trapped with vulture funds and have no fixed rate option available. They are currently paying interest rates of 8% to 9%. The Central Bank must prioritize the protection of these vulnerable customers, as it cannot rely on the funds to offer suitable solutions.
There is another concerning trend emerging. AIB Group, which owns AIB, EBS, and Haven Mortgages, recently announced significant rate increases. With a market share of approximately 33%, AIB Group has raised its three- and five-year fixed rates by up to 0.7%. For an average mortgage of €300,000, this rate increase alone will result in an additional €1,500 per year in repayments on the five-year fixed rate.
What is particularly alarming is that AIB Group has not made any adjustments to its “green” rates, which apply exclusively to new properties with a BER rating of A1-B3. While it is understandable to offer cheaper rates for those purchasing new properties, the rate differential between customers buying new properties and those buying second-hand properties on a five-year fixed rate is 1.15%. This means that customers purchasing second-hand properties will pay significantly more each year. Such discrimination should not be tolerated.
The government is actively encouraging people to buy vacant or derelict second-hand properties through the Housing for All initiatives. Grants of up to €50,000 are available for vacant properties, and up to €70,000 for derelict properties. However, AIB’s unwelcome rate trend may hinder these efforts. It is crucial that this discrimination ceases.