Mortgage rates edge up as ECB hikes yet to feed through

Increase last month was sharper for new variable-rate mortgages, which climbed to 4.16%, while fixed rates rose to 3.49%

Irish mortgage rates were the only ones to fall compared to the previous month, landing them in the top five cheapest mortgage rates in the eurozone.

Average mortgage interest rates crept up slightly in August, with advisers warning of increased pressure on homeowners for the remainder of the year.

New Central Bank data shows the weighted average rate on new mortgage agreements was 3.53% in August, up one basis point on July but five basis points lower than a year earlier.

The increase was sharper for new variable-rate mortgages, which climbed to 4.16%. Fixed rates rose to 3.49%. Fixed-rate loans made up 94% of new mortgage lending in August.

Irish borrowers are still paying less than the euro area average of 3.62%. Ireland had the 11th-highest rate among euro countries in August, down from 9th in July and 8th a year earlier.

The figures do not yet reflect the European Central Bank’s September rate increase, its second hike in four months after June. The ECB’s next policy announcement is expected on October 29.

“August’s figures do not take into account the ECB rate increase in September. And there could be another on the way,” said Sorcha Timoney, mortgage team manager with NFP Ireland.

She said tracker customers would see the September increase passed on directly. Borrowers coming off fixed-rate deals would be “rolling onto a market where rates are heading upwards”.

Trevor Grant, chairperson of the Association of Irish Mortgage Advisors, said the increase would concern home buyers. However, he said a further ECB hike before the end of the year was “not a foregone conclusion”, given the fragile state of the European economy.

He said competition, not the ECB, was the main influence on Irish home loan rates. He also said borrowers might not feel the full weight of the latest ECB increases. 

Between July 2022 and September 2023, the ECB raised rates by 4.5 percentage points, while lenders increased mortgage rates by an average of 2.25 points.

“None of the mainstream lenders have increased their mortgage rates so far this year, though a number of the non-bank lenders have,” he said.

Focus will now switch to the next ECB meeting. Gediminas Simkus, a member of the ECB's Governing Council, warned this week the ECB may need to raise interest rates again because data suggest price pressures keep building.

September’s inflation reading came in above estimates, energy costs have been higher than predicted and the labour market remains rather strong, the Lithuanian central-bank chief said in an interview.

While a decision to hike rates at the end of the year would be based on more data, action this month can’t be excluded, he said in Bangkok, where he is attending International Monetary Fund meetings.

Belgian central-bank governor Pierre Wunsch told Bloomberg Television on Wednesday that “we are probably going to have to hike again”, even if uncertainty remains high.

Mr Simkus said so far there were not any evident second-round effects from the increase in oil and gas costs, echoing earlier remarks by ECB president Christine Lagarde. 

But he warned “the longer energy prices stay elevated, the higher the probability that they will spread”. 

A factor working in the opposite direction is the increase in sovereign yields, Mr Simkus said, while cautioning he was not too worried about euro-area bond markets, where France led a recent selloff.