Irish mortgage rates remain amongst highest in Eurozone despite falling to nine-month low

Mortgage rates fell slightly in May to 4.17%, Central Bank figures show

Investors are pricing in at least one, but more likely two more ECB interest rate reductions by December after seeing inflation fall from 10% in late 2022 to just 2.5% across the Eurozone last month

Irish mortgage rates fell marginally in May ahead of the European Central Bank's first rate cut since it embarked on an aggressive two-year-long campaign to tame surging inflation. 

New figures published by the Central Bank of Ireland show that the average interest rate on a new mortgage agreement was 4.17% in May, a 0.07% fall on the April average. 

It marks the lowest average mortgage rate recorded in nine months despite remaining 0.33% higher on an annual basis. 

The average rate attached to new home loans remains close to a seven-year high, bringing little relief to prospective homeowners. Irish mortgage rates are currently the sixth highest in the Eurozone, with the 20-bloc average remaining broadly steady at 3.8%. 

Last month saw the ECB cut rates for the first time in almost two years, reducing its main lending rate by 0.25% and bringing immediate relief to almost 180,000 customers on tracker mortgages.

However, banks are unlikely to be quick in passing on the cut to fixed-rate customers as they were slow in general to pass on increases.

Last week, Governor of the Central Bank of Ireland, Gabriel Makhlouf said he is comfortable with just one more interest-rate reduction this year, adding that he needed more time to gain confidence that inflation is headed to the 2% target.

Falling inflation

Investors are pricing in at least one, but more likely two more ECB interest rate reductions by December after seeing inflation fall from 10% in late 2022 to just 2.5% across the Eurozone last month.

“As expected the average interest rate eased again in May," said Daragh Cassidy of Bonkers.ie.

"And it should creep slightly lower over the coming months as the rate reductions that have been introduced by several lenders recently feed through into the figures."

Mr Cassidy added that first-time buyers can now get a fixed rate under 4% in PTSB and Bank of Ireland, with many of the country's major mortgage lenders cutting rates in anticipation of the ECB's rate cut last month.

"If the ECB cuts rates for a second time before the end of the year, which it probably will do in September, that will hopefully put further downward pressure on mortgage rates."

However, Trevor Grant, chairperson of the Irish Mortgage Advisors warned prospective home buyers that the ECB is in "no major rush" to cut interest rates again, adding that Eurozone inflation is "still higher than what the ECB would like it to be."

"The ECB will likely be cautious about cutting rates until inflation is under control, though rates are thankfully heading lower rather than higher," Mr Grant continued.

Data published by the Central Bank of Ireland also shows interest rates on household overnight deposits remained at 0.13% in May for the fifth consecutive month.