Mortgage rates rise in March as stagflation fears grow

New data shows the average new mortgage rate now stands at 3.52%, a slight increase from February and ahead of likely ECB interest rate hike

The average Irish mortgage rate is 0.12% higher than the euro area average, putting Ireland in seventh place behind the Netherlands and ahead of Belgium.

Mortgage interest rates rose again in March, adding further pressure to households bearing the brunt of cost increases linked to the conflict in the Middle East.

New data from the Central Bank of Ireland shows the average new mortgage rate now stands at 3.52%, a slight increase from February, but down by 0.25% on March of last year.

However, the increase comes ahead of a likely rise in the interest rate set by the European Central Bank when it meets next month, which will be immediately passed through to homeowners on tracker mortgages and ultimately passed through by the banks to variable and fixed-rate mortgages.

The Central Bank data shows the average Irish mortgage rate is 0.12% higher than the euro area average, putting Ireland in seventh place behind the Netherlands and ahead of Belgium.

The average consumer loan rate rose by 0.09% to an average of 6.98%. The average business lending rate stands at 5.09%, significantly higher than the euro average of 3.51%.

Trevor Grant, chairperson of Irish Mortgage Advisors, said the slight increase would still be a concern to Irish home buyers. 

"This uptick has happened before the ECB has even started to increase its rates, as it is widely expected to do next month. With the Middle East crisis rumbling on and soaring energy costs continuing to push up inflation in the eurozone, an ECB rate hike this June is all but inevitable. 

So, would-be house buyers need to be mindful of the potential for increased mortgage borrowing costs this year — and to factor that into any mortgage decision they make.

"A June ECB rate hike would mark a significant shift in ECB policy as it would be the first rate increase in almost three years. So, it has never been more important for house buyers to get the best deal on their mortgage," he said.

The Central Bank data comes as ECB Governing Council member Olli Rehn warned various data readings are pointing to stagflation as a result of the Iran war and rising energy prices.

“The first signs were already visible in the statistics, when growth in the euro area in the first quarter was only slightly positive and inflation accelerated to 3%,” the Finnish central-bank chief said on Wednesday in a speech.

While stressing the current shock was “not quite as big” as the last spike in prices in 2022, he said events have shifted away from the ECB’s baseline outlook and closer to a “less favourable scenario, at least for oil prices”.

Despite inflation surging beyond the ECB’s 2% target, policymakers in Frankfurt have held fire on interest-rate hikes as they await more information on how the conflict is affecting prices more broadly.

“Today we’re once again seeing an external price shock related to geopolitical tension and the volatility of energy markets,” Bulgarian central-bank Governor Dimitar Radev said separately in Sofia.

Rehn, like his colleagues, stressed the key factors are the strength and duration of the war, as well as possible spillovers. But he said there was no sign yet of inflation expectations de-anchoring and called developments over wages “reassuring”. 

His Slovenian counterpart, Primoz Dolenc, agreed gyrations in energy markets were having a limited effect on the economy for now, but cautioned consumers’ inflation expectations were likely to rise.

Additional reporting Bloomberg