Rise in mortgage rates puts the squeeze on borrowers

At 4.27pc, the average interest rate on a new mortgage in Ireland rose slightly from the 4.19pc rate recorded in December, according to the latest data from the Central Bank of Ireland.

Some 70,000 homeowners are coming off fixed rates this year, while first-time buyers are being squeezed by rising rates and an ongoing rise in property prices.

This meant Ireland had the seventh highest rates in the Eurozone in January.

Today's News in 90 Seconds - March 13th

The slight rise in rates has been attributed to borrowers choosing shorter-term rates, some of which are higher than longer-term rates.

This is because they are banking on European rates falling over the course of this year and do not want to get locked into an uncompetitive fixed rate.

Many people are opting for variable mortgage rates in the hope that the European Central Bank (ECB) will start cutting its key rates from the summer.

Rates varied hugely across the currency bloc, from as low as 2.44pc in Malta to as high as 6.07pc in Latvia in January.

The Eurozone average fell for the second month in a row to 3.96pc.

Mortgage rates have begun to ease in recent weeks in some countries as the cost of raising funds on capital markets eases in advance of an expected drop in ECB rates over the coming months.

Head of communications at mortgage broker Bonkers.ie Daragh Cassidy said Irish mortgage rates have remained broadly steady over the past few months.

“And despite the month-on-month jump they remain relatively close to the Eurozone average.”

He said it now seems highly likely that the ECB will start to cut interest rates from June and we could see three or four 0.25 percentage point cuts by the end of the year.

“Tracker customers will benefit almost immediately from any cuts. For everyone else, it’s less clear cut.

“The main lenders have passed on less than half of the ECB rate hikes to date.

“So it’s unlikely AIB, Bank of Ireland and PTSB will respond to any rate cuts immediately,” Mr Cassidy said.

It could be into early next year before we see the main lenders drop their variable and fixed rates for new and existing customers, he said.

Mr Cassidy said non-bank lenders like Finance Ireland and ICS Mortgages could drop their rates fairly significantly over the coming months as the cost of raising money on capital markets, from where they get all of their funds, falls.

However, their rates now are high compared to the main lenders, he said.

Despite the predicted fall in ECB rates over the coming year, those on fixed rates that are due to come to an end over the next few months still need to be preparing for potentially higher repayments.

Mr Cassidy said many mortgage holders who took out a fixed rate over the past three or four years may be enjoying rates as low as 2pc or 3pc at present.

But they will generally be faced with new rates of between 4pc and 5pc, if not higher, when they look to refix over the coming months even if the ECB starts to cut rates soon, he said.

Credit unions have much lower rates.