Homeowners face hit with mortgage rates on the rise
HOMEOWNERS are being warned to brace themselves for higher mortgage rates, with the first shots fired yesterday by Avant Money.
The Spanish-owned bank, which shook up the market when it launched here 18 months ago offering the cheapest mortgages around, has said it is now increasing the rates on some products.
It comes ahead of the first expected hike in interest rates by the European Central Bank (ECB) for over a decade, as it bids to fight off inflation.
The ECB is expected to raise its rates in July by 0.25 percentage points, with at least one similar rise planned before the end of the year, adding to the pressure on homeowners already struggling with the increasing cost of living.
By 2024, it is predicted that rates could be up by at least 2.5 percentage points following a sequence of rises by the ECB, adding more than €1,000 on the average annual bill for a €250,000 mortgage. The rises will be felt by the 450,000 Irish homeowners with a tracker or a variable-rate mortgage, and those whose fixed-rate mortgage terms are due to expire.
Avant Money said it was increasing its five-, seven- and ten-year fixed rates for new borrowers due to ‘upward pressure on funding costs’. The move will see the popular seven-year fixed rate rise from 2.05% to 2.15% for a borrower with an 80% loan-to-value.
Martina Hennessy of broker Doddl.ie, said the new rate will be €37 more expensive a month, or €444 a year, than the existing one, for a €250,000 mortgage. Avant Money’s three- and four-year fixed rates are unchanged, with rates starting from 1.95%, the lowest in the market.
The Spanish-owned lender is reducing the rates on its 25and 30-year mortgages.
Trevor Grant, chairman of the Association of Irish Mortgage Advisors, said: ‘If people were putting off fixing or switching until now, they have no further excuse.
‘This is likely to be the first of a number of increases.’
He continued: ‘Rates have been at historically low levels for some time and educated mortgage holders should be considering their options to lock in and protect themselves against future rate increases which are inevitable. Even those on existing fixed deals should ask their lender if there are break fees to fix with the same lender or elsewhere.’
Mr Grant said borrowers could still obtain a fixed-rate mortgage for 25 to 30 years at under 3% with at least two lenders, and added that homeowners should obtain marketbased advice from a broker to understand their options.
‘For the past number of years, over 80% of new advances have been fixed for three or five years. Longerterm fixed rates now need to be considered,’ he added.
Last month, online mortgage broker MyMortgages.ie reported a 39% increase in levels of switching activity between March 2021 and March 2022. It said this was driven by some awareness about the forthcoming ECB interest rate rises and an increase in competition, as well as an avalanche of people looking to switch as KBC and Ulster Bank prepare to leave the market.
It noted that Avant Money had been among the leaders in a mortgage price war which had benefited borrowers, for both five-year fixed mortgages and those spanning 25 or 30 years. Others joining the competition for borrowers included ICS, Finance Ireland and Haven Mortgages. Joey Sheahan, head of credit at MyMortgages.ie and author of the book The Mortgage Coach, said: ‘No one knows when the ECB will increase their rates, but the general consensus is that rises are on the horizon – we might well see two or three between this year and next.’ Daragh Cassidy, of switching website Bonkers.ie, said it was not all immediate bad news for mortgage holders, with a number of the biggest domestic banks having offered rate reductions in recent weeks. He explained that retail banks such as AIB, Bank of Ireland and Permanent TSB were partly able to fund their mortgages through their vast deposit books, and so were less exposed or reliant on the global markets.
‘Rises are on the horizon’