Mortgage rates fall slightly from their peak but customers may have to wait a while for cuts

Brokers Ireland said the environment for mortgage holders is 'more optimistic' than it was when the ECB began hiking interest rates two summers ago.

Interest rates on mortgages fell marginally in April after reaching their peak in March, however further declines may be slower than expected despite the recent European Central Bank (ECB) cut.

Figures from the Central Bank showed the average interest rate on new Irish mortgage agreements dropped to 4.24% in April, representing a seven basis-point fall on the previous month.

Brokers Ireland said the environment for mortgage holders is “more optimistic” than it was when the ECB began hiking interest rates two summers ago.

Mortgage holders, especially tracker customers which are immediately impacted by monetary policy decisions, were given some relief last week as the ECB decided to reduce its base lending rate by 0.25%, marking the first cut in two years.

However, industry brokers have speculated that lenders will be just as slow to pass on any reductions as they were to implement interest rate increases.

Interest rates are likely to stay high for the rest of the year with some ECB governing council members hinting the regulator may be too cautious to announce another reduction before its summer break in August.

Rachel McGovern, director of financial services at Brokers Ireland, said there are approximately 80,000 borrowers coming off very low fixed rates this year and will be faced with much higher rates.

“The next move for them is very critical and needs to be parsed very carefully. This is a time for being cautious, careful and deliberate,” she said.

The Central Bank figures also showed that the average interest rate on new fixed rate mortgage agreements, which constitute 70% of the volume of new mortgage agreements, was 4.13% in the same period. This is a decrease of six basis points from March and an increase of 59 basis points from the same month in the previous year.

Ms McGovern said the borrowers that are most severely impacted by rising interest rates are those whose mortgages are with non-pillar lenders and credit servicing firms as “they are paying close to double the rates available at the pillar banks.” 

Interest rates may have only declined slightly in April, but the trickle downwards signals that mortgages may have hit their peak in March. Interest rates on new mortgage agreements crept up in March to reach the highest level since 2017.

Market activity

Meanwhile, there has been a flurry of activity recently in the retail banking market as lenders have adjusted some of their rates, especially their so-called 'green mortgage' offerings, in an effort to swell their loan books further. 

The ramped-up activity comes as customers are set to come off fixed-rate contracts this year and a new competitor, the Spanish bank known as Bankinter which is behind Leitrim-based mortgage broker Avant Money, recently announced plans to establish a fully fledged banking presence in the Republic. 

"With increasing competition in the market with the fuller involvement of Bankinter/Avant Money and also new lenders NUA Money and MoCo, the outlook for the medium term is a lot more positive," said Ms McGovern.