Mortgage rates steady ahead of expected rate cut

Mortgage rates have increased 1% on last year but a series of rate cuts are expected from the ECB.

Average mortgage interest rates for homeowners stood at 4.1% at the end of August, unchanged since May but increased 1% compared to a year previously, new data from the Central Bank of Ireland (CBI) shows.

The equivalent euro area average mortgage rate stood at 3.71% with the rate in Ireland exceeding the euro average by 40 basis points. Despite reductions in rates implemented by the European Central Bank (ECB) this year, mortgages in Ireland remain the sixth most expensive in Europe.

The CBI said the interest rate on new fixed-rate mortgage agreements, which constitute 68% of new mortgages, was 3.95% unchanged from July and eight basis points lower than in August 2023.

The total volume of new mortgage agreements decreased by €129m in July to €851m in August, a 14% drop from last year.

Reacting to the data, Trevor Grant, chairperson of Irish Mortgage Advisors said the rise in average rates on new mortgages is disappointing for house hunters as there have been a number of developments which should prove positive for them. 

These include the extension of the Help-to-Buy scheme to 2029, Budget 2025’s tax cuts and €6bn capital investment in housing along with the expectation of another ECB rate cut next week. 

"This in turn could push up momentum in the housing market and see house prices soar even higher though," he said. "The challenge to house hunters of runway house prices, with the latest CSO house price report marking the eleventh consecutive month of annual house price growth, should not be underestimated. 

"Typically the higher the price of the home, the higher the mortgage. So the size of the mortgages which many people need to take on today means mortgage interest can really add up. 

Mortgage holders should therefore make it their priority to look for a better deal on their mortgage as substantial savings could be up for grabs.

The ECB is expected to cut rates further when it meets in Frankfurt next week. A survey of economists by Bloomberg shows an expectation that the ECB will speed up interest rate cuts over the months ahead to bolster the economy, taking borrowing costs to levels that no longer restrict demand by the end of 2025.

With inflation now a touch below the 2% goal, analysts see the ECB decreasing its deposit rate by a quarter-point next week and at every meeting through March. Respondents then forecast two more reductions — in June and December — bringing the benchmark to 2%.

The Central Bank also reported an increase in rates on new consumer loans, up on an annual basis by 28 basis points to an average of 7.7%. Lenders wrote €230m in new consumer loans in August.