Stephen Hamilton: Mortgage holders to endure more pain in the short term

Another interest rate hike this week could add more than €600 in annual repayments for those on a tracker mortgage

Mon, 01 May, 2023 - 08:30

Stephen Hamilton

Mortgage rates have been steadily increasing over the last year as Central banks battle with high inflation. While falling, inflation is still stubbornly high and so another ECB rate increase is on the cards.

The key ECB refinancing rate, which affects tracker mortgages, is currently 3.5% and looks set to rise to 4% this week, and could go as high as 5% in the coming months.

This latest, anticipated rate rise will mean an increase in mortgage repayments of €648 per year on a €200,000 tracker mortgage.

Since the start of the ECB rate hikes in July 2022, mortgage repayments will have increased by €4,140 per year on a €200,000 tracker mortgage. Banks and mortgage lenders will, no doubt, also increase rates for variable and new fixed-rate customers. The difference between the highest and the lowest mortgage rates in Ireland is dramatic, so the advice is to shop around.

Some Irish mortgage lenders have new mortgage rates as high as 7% or 8%, while others have rates as low as 3.5%.

So while rates have increased, it is more important than ever to get the best mortgage deal possible.

New home buyers and the thousands coming off fixed-rate mortgages this year should speak with an independent mortgage adviser to consider available options. Do not settle for the rates on offer from your lender without checking what is available in the market.

Rising mortgage interest rates seem to be having an effect on Irish property prices.

The latest House Price Report from Daft.ie shows that property prices fell by 0.3% in the first three months of 2023. That is the biggest drop since the first three months of 2012. The only region not to see prices fall in the latest analysis was Munster, where they rose by 0.6% in the three months to March.

However, rising mortgage rates are not the only factor affecting property prices. The Irish Central Bank has increased the amount that home buyers can borrow to up to four times their income in 2023 (up from 3.5 times their income in 2022).

Also, there is still a lack of supply in the property market. So despite rising mortgage rates, property prices will remain stable for the time being.

In our business, we have noticed a slowdown in mortgage drawdowns in the first quarter of 2023.

This is backed up by the numbers from the Banking and Payment Federation, which shows that mortgage drawdowns decreased by 30% in the first three months of 2023, when compared with the last quarter of 2022.

The slowdown in first-quarter mortgage drawdowns seems to be due to the fall-off in switcher mortgages, as interest rates have increased. However, overall home-buyer figures remain positive, with first-time buyer and mover mortgage drawdown volumes reaching their highest Q1 levels since 2007 and 2008.

Hopefully, central banks will be able to get a handle on high inflation soon, so that mortgage interest rates can level off or perhaps even start to fall in 2024.

However, in the short to medium term, it looks like more pain for mortgage holders as interest rates continue to rise in 2023.