Consumer Corner: When will mortgages start getting cheaper again?

Consumer Corner: When will mortgages get cheaper?

These days, unlike the guy on the bus, most of us know what a tracker mortgage is. Previously anyone who proclaimed they had a tracker mortgage received jealous looks from anyone who didn’t given the low rates. 

However these days things are different and the European Central Bank (ECB), which is responsible for setting interest rates has increased rates a lot over the last year. 

This has had a direct effect on mortgage holders but what we need to know now is - when will this stop and will my mortgage rate get cheaper any time soon?

So here’s the bad news. Prospective mortgage holders and those on trackers in particular are being warned that the medium-term outlook is for rates to go much higher over the coming months. 

Daragh Cassidy of Bonkers.ie said the ECB is likely to hike its main lending rate, off which trackers and mortgage rates are priced, to 4% when it next meets in June, and it’ll probably hit 4.25% by the end of the summer.

“This means the average tracker customers will soon be paying a rate of around 5.5% while the best rate available to prospective first-time buyers will be similar.” 

Bonkers.ie is urging people on trackers, variable rates, or those who are soon to come to the end of their current fixed-rate agreement to assess their options now before rates go even higher.

A 0.5 percentage rate point increase will typically increase mortgage repayments by €25 a month for every €100,000 borrowed if you are on a tracker mortgage.

LIVING TARGET

Joey Sheahan of MyMortgages.ie and author of The Mortgage Coach said it’s very hard to say how things will go but his guess is that interest rates will peak at 4.75 to 5 percent by the middle to end of 2023.

“Depending on inflation rates, they will stay there for a while, and while it’s impossible to gauge how long, I would estimate one to two years before they start to recede. This is a living target so no definitive answer is possible.”

Trevor Grant, Chairperson, of the Association of Irish Mortgage Advisors (AIMA) said he thinks markets appear to believe that we are reaching the end of the current increasing interest rate cycle, with perhaps two more increases of 0.25 percent due in the coming months.

“On this basis, many mortgage customers are wondering when rates will start to fall. 

Unfortunately, with inflation likely to remain stubborn for a number of months, any decrease this year is hard to see. At this time, markets suggest we should start to see some decreases toward the end of quarter one 2024.”

He said that a return to historically low ECB rates is highly unlikely with a base rate low of 2.5 percent to 2.75 percent probable.

Ronan Brennan, Head of Retail Banking Service Delivery with Delta Capita said people are now faced with a situation where they are coming off fixed rates onto much higher rates, and those who were on tracker rates are now, for the first time in over a decade, seeing their mortgage rates increase.

“Many households simply do not have the financial cushioning to withstand this increased demand on their finances. 

We work with Ireland’s retail banks on a daily basis and it’s clear that they all want their customers to engage with them as early as possible so that alternative repayment arrangements can be agreed, customer centricity and support is a key concern for banks at times of customer stress.

“We simply don’t know what the future holds for interest rates. There is a generational expectation of low rates, and probably a lack of appreciation of what value there was in long-term fixed rates.”

DIFFICULT TO PREDICT

It is difficult to predict the future and Martina Hennessy of mortgage switching platform doddle.ie, said we have entered a new norm with regard to interest rates, and the low-interest rate environment which prevailed for a decade up to 2022 is gone.

"There was an extraordinary period of negative interest rates from 2016 to 2022 and this has been followed by a very steep climb in Euribor rates to over 3 percent as it stands today. The market now sees funding curves peak at 4 percent in late 2023 before falling to between 2.75 percent and 3.25 percent by 2025.

"If funding costs peak at 4 percent this would indicate that mortgage lending rates could rise to in excess of 5 percent, highlighting that rates may not yet have reached their peak.”

Daragh Cassidy, Head of Communications at mortgage broker bonkers.ie said despite the increase in mortgage rates, our mortgage rates in Ireland are still among the lowest in the Eurozone. For now at least.

“This is because the main banks have been so slow at passing on the ECB rate increases to mortgage customers. Since last July, the ECB has hiked rates by 3.75 percentage points. However, the main banks have only hiked their fixed rates by around 1.5 to 2 percentage points on average."