Why Ireland has limited fixed interest mortgage rates

Long-term fixed mortgage rates have only become available in Ireland since October from Avant Money and Finance Ireland

Sun, 13 Feb, 2022 - 21:00

Michael Dowling

This newspaper has flagged the strong likelihood of the European Central Bank (ECB) increasing interest rates by the fourth quarter of 2022 with more increases planned for 2023.

The expected increases by the end of 2023 are between 1% to 1.5%. In, March 2016, six years ago, the ECB base rate fell to 0% and since then, we have experienced historically low-interest rates in Ireland, not ignoring the fact that we have consistently paid the highest interest rates in Europe.

Based on the last information published, there are 722,886 residential and 90,531 buy to let mortgage customers in Ireland.

There are 300,000 customers on tracker rates, 175,000 are on variable rates and 99% of the remaining 338,000 are on short-term fixed rates from two to five years.

The effect of each 0.25% increase in interest rates on a mortgage of €250,000 is €30 per month, therefore if rates rise by 1.5%, you will be paying €180 per month more.

There is a solution available for all mortgage holders, one that is available throughout all developed economies in the world, but which has not been made available by all the mainstream lenders in Ireland.

The simple solution is long-term fixed rates which have only become available in Ireland since October.

Avant Money and Finance Ireland are to be congratulated for introducing these options to our market.

Both these lenders offer 15- to 25-year fixed rates irrespective of loan to value ratio at sub 3%. In fact, Avant Money have a 30-year fixed rate ranging from 2.85% to 3.15%.

Both lenders allow you make part payments of 10% of the remaining loan balance each year without penalty and you know from day one of your mortgage what the redemption penalty will be if you repay the loan in full during the fixed term.

Uniquely, Finance Ireland will reduce your fixed rate as your loan to value ratio falls based on the fixed rates available at the time you took out your mortgage not at the time the loan to value ratio falls.

The mainstream lenders (noting KBC and Ulster Bank are exiting the market) control 85% of the mortgage market but cannot offer — or will not offer — long-term fixed rates.

The longest fixed term available from any of these lenders is 10 years, at rates ranging from 2.85% to 3.5% whereas the 15- to 25-year fixed rates from Finance Ireland and Avant Money are lower.

Irish mainstream banks will benefit more than their European counterparts by higher interest rates as net interest income accounts for 80% of Irish retail banks income compared to 54% in Europe.

The value of AIB shares has risen 25% this year and Bank of Ireland shares have risen 37% as they have a larger UK loan book where base rates have risen from 0 to 0.5% in the last six months.

The mainstream lenders distort the market with massive advertising campaigns to distract mortgage customers from what is the basic consideration for any mortgage applicant, the interest rate, and more importantly, the long-term security around the interest rate.

Look at the messages from the mainstream lenders, it’s all about online applications, quick decisions, and “encouraging” an elderly parent to leave their home.

You notice there is no mention of interest rates and most significantly, long-term fixed interest rates.

If you go to a mortgage broker, you get a quick decision and an online application, and you will also get the option of long-term fixed interest rates with great flexibilities built into these products.