Average mortgage rates dip slightly but hikes 'almost guaranteed' to resume

Darragh Cassidy of Bonkers.ie said that anyone applying for a mortgage now are going to face "much higher rates". Picture Denis Minihane.

Average mortgage interest rates took a slight drop during the month of February but further hikes from lenders are “almost guaranteed” over the coming months.

New figures from the Central Bank of Ireland shows the average mortgage interest rate at 2.92% - down from the 2.93% recorded in January which at the time 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%.

This means 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 month-to-month.

The eurozone average now stands at 3.33% which is 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 doesn’t have the third-lowest rate because rates have become cheaper but rather rates in other eurozone countries have become more expensive. In October 2019 — the last time rates were this high — Ireland had among the highest mortgage interest rates in Europe, behind only Greece.

Darragh Cassidy, of mortgage broker Bonkers.ie, warned that this latest data is based on mortgage drawdowns which have been applied for several months ago and anyone who is applying for a mortgage now will be faced with “much higher rates”.

“Looking forward, the ECB is likely to hike rates again next month. 

This still means more hikes from all lenders are almost guaranteed over the coming months.

Mr Cassidy also said that these figures only take into account mortgage drawdowns from AIB, Bank of Ireland and Permanent TSB with non-bank lenders excluded. If the non-bank lenders were included, he said the average rates would be higher.

Last month, the ECB agreed to increase interest rates by 0.5% bringing the cumulative increases since last July to 3.5%.

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% 

The ECB’s chief economist Philip Lane has already signalled that more increases are likely to be implemented following their meeting on May 4. Another increase of 0.25% is expected.

Mr Cassidy said this 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.

However, Mr Cassidy 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 subsidising mortgage holders,” he said.

In February, the total volume of new mortgages came to just over €1bn — a 40% increase compared to January and an increase of 69% compared to February 2022.