THE EUROPEAN CENTRAL Bank (ECB) has raised interest rates by 0.25 percentage points, leaving Irish mortgage holders facing higher bills yet again.
Announced by the ECB yesterday afternoon, it is the eighth such increase in a row in its efforts to bring down inflation, with more increases expected.
ECB president Christine Lagarde told reporters after the announcement that it is “very likely” the institution will hike interest rates again next month.
“Unless there is a material change to our baseline, we will continue to hike at our next meeting. So we’re not thinking about pausing,” she said.
The ECB’s base deposit rate now sits at 3.5%, the highest it has been in over two decades, while its main lending rate has risen to 4%.
The hike is bad news for the thousands of Irish mortgage holders who have seen their monthly repayments rise sharply over the last year.
It means tracker mortgage holders will see an almost immediate hike in their mortgage rate of another 0.25 percentage points.
“Those paying a margin of 1% will now be paying 5% for example,” Daragh Cassidy of consumer site Bonkers.ie said.
“In money terms, if you have €100,000 remaining on your tracker, your repayments will go up by around another €12 or €13 a month. If you have €200,000 outstanding it’ll be around €25 more,” he said.
“But when all increases since last July are taken into account, tracker customers are now paying several hundred euro more each month. However, it has to be remembered that these customers were enjoying rock-bottom rates for many years when the rest of the country wasn’t.”
President @Lagarde has just presented the Governing Council’s monetary policy statement.
— European Central Bank (@ecb) June 15, 2023
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Cassidy said those on variable mortgages are also likely to see an increase in their repayments soon.
“The main banks in Ireland have been slow at passing on the recent ECB rate hikes to their variable-rate customers – partly because these rates were so high to begin with,” he said.
“Permanent TSB and Bank of Ireland haven’t hiked their variable rates at all, but this is unlikely to last now that rates are at 4%.
“Variable-rate customers at all the main banks could see a 0.25 percentage point increase to their mortgage rate or slightly more over the coming weeks. Again, if you have €200,000 outstanding on your mortgage you’ll be looking at paying around €25 more a month.”
The ECB increase will also mean higher rates for first-time buyers and people with switcher mortgages, as well as around 50,000 mortgage holders who are set to exit out of fixed-rate deals in the next three years.
“Last year, if you borrowed €250,000 over 30 years on a three or five-year fixed rate, you would have been able to borrow that at 3%,” Martina Hennessy, managing director of mortgage broker Doddl.ie, told The Journal.
“That would have meant that you’d be paying €1,054 per month. That same rate is now €1,194 per month. That is going to be €140 more that you’re paying this year as opposed to last year for that same €250,000.”
The higher rates will also impact those who have mortgage approval but who are struggling to find a home to purchase due to the current housing crisis in Ireland, with limited supply available at rising prices.
Speaking to The Journal, Susan, a woman living in Dublin, said that she got mortgage approval last year and spent the whole six months “frantically looking for a home”.
“I was outbid so many times in this crazy housing market. I had to then re-apply for a fresh mortgage and while I got the same amount, it will be at a higher interest rate because of the ECB hikes,” she said.
“That means I’m not going through the whole househunting process again in the same awful market, but with tighter mortgage repayment terms.
“It’s the reality I have to deal with, but I’m determined now to get something this time around as I can’t bear facing into seeking mortgage approval again, and judging by today’s ECB announcement, that could potentially mean approval at tougher rates, yet again.
“The biggest problem for me now though is the horrendous lack of housing supply, the overbidding on homes – they’re going at around €100,000 over the asking price most of the time – and losing out over and over again to other bidders. It is demoralising.”
Marie, who is living in Limerick, told The Journal that she was “one of the so-called lucky ones with a tracker mortgage for the last few years, for which I was so grateful”.
She said the burden of the ECB interest rate hikes now is “appalling”.
“It’s the worst news for people like myself in the middle of a cost of living crisis and it has added huge outgoings to our monthly budget,” she said.
“I am living off my credit card at the moment and I have no idea where this is going to go. And I say this as someone with a ‘good salary’.
My mortgage has gone up by €330 a month this year alone. Where will it end?
Hennessy said that this is a “massive challenge” for those trying to buy a home.
“We would have hundreds of customers every single month who come to us as house hunters. They all want to buy homes that are affordable or that they can afford to repay,” she said.
“Prices are still increasing even if they’re increasing more slowly, and so are interest rates. So it’s like a double pressure in that to buy the house it’s costing them more, but also the mortgage payments when they do secure that home is costing them more.
“It takes time [to find a home]. We are doing reapprovals for clients who originally came to us last year but they haven’t been able to secure homes, so we’re getting a repeat approval for them. And indeed we do approvals sometimes three times for people who are going into their second year of househunting, and they haven’t been able to secure their home.”
She said that often, the challenge for people is not securing a mortgage, but being able to find a home. “The real challenge is obviously the supply of property, but also the affordability of property.
People generally don’t want to borrow more, they just want to afford to a home.
“It’s not that people will come to us and want to borrow more than they’re comfortable with. They want to borrow to be able to buy, but what they really what is they want an affordable home, and that’s what’s not available in the Irish market at the moment and that’s why the market’s dysfunctional.”
She said that anyone who is thinking about taking out a mortgage, who is mortgage approved and looking to purchase over the next six months and those coming out of fixed-rate deals “need to get advice” and research what is best for them.
“There are eight lenders in the Irish market. They all have different rates. There are some competitive rates still available, but it’s harder to find them,” she said.
“When you get approval, it’s not the rate at the time you get approval, it’s the rate at the time you draw down your mortgage. So make sure you don’t go to one lender. If you go to one lender, you’re missing out on almost 90% of what the market has to offer.”
She added that the “huge challenge” is finding a property that’s affordable and that those looking for a mortgage will need to “stress test” the current rate and be mindful that it will be higher by the time they draw down, which may not be as affordable.
“It’s more important than ever that people start to really compare mortgage offerings, really look for value when they go to take out a mortgage. Don’t just go to the first bank or the bank you bank with.”
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