‘Explosion’ in home loan switching amid rate fears

Almost 2,000 seek new mortgage deals as ECB hikes interest rates

ALMOST 2,000 homeowners sought to switch their mortgage last month to nail down low-interest deals as the European Central Bank starts aggressively hiking rates.

The surge in switching approvals, described as an ‘explosion’, comes as the ECB indicated yesterday that even greater interest rates hikes are on the way.

As the cost of living crisis continues, the numbers looking to switch their loans to a better deal has more than doubled, new figures from the Banking Federation of Ireland show.

The next interest rate hikes will pile more pain on homeowners repaying mortgages, as an ECB council member signalled yesterday it will raise interest rates by another 75 basis points at its October meeting, to 2%, and again in December.

The expected hikes would send monthly repayments soaring if passed on by lenders.

Another 0.75% on the average new mortgage rate now would push it up from 2.63% to almost 3.38%.

‘People are looking for certainty’

And another increase of 0.75% in December would raise it to 4.13%, if both increases are passed on in full by the banks.

Added together, for someone with a 25-year €300,000 loan that means an extra €232 a month, with repayments jumping from €1,360 to €1,592 a month. That totals €2,784 extra a year.

The number looking to fix their rate has more than doubled in the 12 months to the end of August.

There were 823 mortgage-holders fixing in August last year which jumped to 1,864 this August, a mammoth 126% increase.

Shane Quinlan of estate agents Sherry Fitz-Gerald described the number as an ‘explosion’.

He said: ‘It’s the fastest-growing section of the mortgage market. Traditionally 55% of new lending would be to first-time buyers, 25%-35% to mover-purchasers, and the rest would be made up of top-ups and a bit of switching.

‘The reason there is so much demand in the last 12 months is historically low interest rates available and the expectation that the direction of travel on ECB rates is up. People want to lock in a lower and better rate for a longer period,’ he said.

The level of switching was described as an ‘avalanche’ by housing campaigner David Hall of the Irish Mortgage Holders Organisation.

‘People are switching for safety, protection, certainty. There’s an avalanche of switching going on at the moment. People are looking for certainty now. Everyone wants certainty,’ said Mr Hall.

The interest rate rises have to be ‘aggressive’ even at the risk of a recession, an ECB governing council member warned.

The ECB is worried about inflation spiralling across the eurozone. Annual inflation accelerated to 9.1% in August, up from 8.9% in July, and above market forecasts of 9%, preliminary estimates showed. Inflation is over four times the ECB’s 2% target.

ECB president Christine Lagarde warned: ‘We will do what we have to do, which is to continue hiking interest rates in the next several meetings.’

Fellow ECB governing council member Peter Kazimir said: ‘We have to be vigorous, even ruthless, regardless of the looming recession.’

Financial markets see the ECB’s 0.75% deposit rate rising to 2% by the end of the year, then to around 3% next spring.