HOMEOWNERS SHOULD CONSIDER switching mortgage providers well in advance of the end of their fixed-term loans, as more rate rises may be in sight, mortgage brokers have warned.
Despite most forecasts predicting that the European Central Bank (ECB) is done with rate rises for now, mortgage brokers have said the full impact of rate rises have not yet been fed through to consumers.
In an effort to tame inflation, the ECB’s main lending rate was increased 10 times in the last year, sitting currently at 4.5%.
Those rises have been passed on to mortgage holders in Ireland during that time, but brokers warn that there are likely further hikes to go before we see cheaper mortgage rates.
Speaking to The Journal Mark Coan, the founder of mortgage broker Money Sherpa, said his working assumption is that rates are likely to stay high for quite some while and that buyers should see it simply as a bonus if they do come down.
Coan explained that lenders have not yet passed the full extent of ECB rate rises through to borrowers and because of this he expects both variable rates and fixed rates to increase within the year.
Coan’s view is that we could see the average variable rate jump from approximately 4% currently to as high as 6%, while the average fixed rate could jump from 4% to 5%.
This outlook was shared by Ask Paul’s head of mortgages Shane Cullen, who said he fully expects to see one or two more rate increases this year from Ireland’s main mortgage lenders.
Ask Paul are forecasting a tipping point by the end of the year, with the lowest fixed-rate on the market expected to be around 4.85% according to its forecasts (this excludes ‘green mortgages’ which it expects to be lower).
In turn, these higher rates will also impact house prices as more people feel the pressure of higher mortgage repayments.
“It’s not as if the brakes are going to come off, but it will be a kind of stabilisation [of house prices]. Because of the supply side shortage, I’d still see prices rising, but maybe not as crazy as it could have been,” Coan explained.
So no €300,000 average price for new homes, as was suggested by Sinn Féin leader Mary Lou McDonald before Christmas?
Both Coan and Cullen are of the view that that particular promise from Sinn Féin is unrealistic.
‘Fantasy land’
Before Christmas, the Sinn Féin president said house prices have to fall substantially and that the average house prices in Dublin should fall to “the €300,000 mark”.
The average house price in Dublin is about €430,000 at present, according to figures from the Central Statistics Office.
Cullen explained that with the supply issues in housing, bringing average house prices down by that amount would be an impossible feat.
“The cost of materials has gone up. If you look at house prices and how much they’ve risen over the last while, demand hasn’t slowed down at all, the labor market is strong, unemployment is low.
“So that’s driving mortgage approvals and the banks are going to keep lending money, and issuing mortgage approvals. But if there’s not enough houses to meet that demand, the only thing that can happen is for houses prices to maintain above a certain level.
“To expect them to reduce in a short period of time, it is kind of fantasy land stuff,” Cullen said.
Coan agreed with this and said: “The challenge there, frankly, is if the commercial sector is going to build houses, it needs to make a profit. And the biggest issue that the housing sector faces is that costs have risen exponentially over the last few years.”
“So it seems wishful or magical thinking,” Coan added.
Switching
When it comes to rate rises, both brokers recommend that homeowners who are due to come off their fixed-rate in the next couple of years look at switching.
Some 150,000 households on fixed or variable rates are facing into rate rise of 1 to 2%.
“There is a window for people to look at fixing on 4% rather than finding out in six months that they have to fix on 5%.
“A lot of people just hear the background of ECB rates coming down and kind of basically say, I don’t have to look into it. And that’s going to be a mistake that people would regret,” Coan said.
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