The cheapest mortgage lender in the market is to raise its interest rates in a strong signal that borrowers face higher costs, the Irish Independent has learned.
Avant Money, which shook up the market here when it launched mortgages for under 2pc at the end of 2020, is increasing some fixed rates. The move comes ahead of an expected rise in European Central Bank (ECB) rates as early as July, with a total of three rises now likely by the end of this year.
The risk of a succession of mortgage rate rises has prompted warnings to borrowers to brace for higher costs to service tracker and variable rate home-loans. Avant Money, the Leitrim-based lender owned by Spain’s Bankinter, is increasing its five, seven and 10-year fixed rates for new borrowers by between 0.2 and 0.3 percentage points.
The move will see the popular seven-year fixed rate rise from 2.05pc to 2.15pc for a borrower with an 80pc loan to value. This will mean the new rate will be €37 more expensive a month, or €444 a year, than the existing one, according to Martina Hennessy of broker Doddl.ie. This is for a €250,000 mortgage. Avant Money’s three and four-year fixed rates are unchanged, with rates starting from 1.95pc, the lowest in the market.
And the lender is reducing the rates on its 25 and 30-year mortgages.
Brokers were told by Avant Money it is seeing “considerable upward pressure on funding costs”. This meant the option to fix for longer may be attractive to borrowers, it said. Head of mortgages at Avant Money Brian Lande said there was upward pressure on interest rates, but the lender would continue to offer rates from 1.95pc.
Meanwhile, there could be three European interest rate rises this year and a number next year, economists have warned. This will impact some 450,000 of homeowners who are still on a combination of variable and tracker rates.
Large numbers of homeowners have opted for fixed rates, but a string of ECB rate rises will hit them when they come to the end of their fixes, and will make new fixed rates more expensive. A 0.25 percentage points rise in the ECB rate could add €380 a year to the cost of a typical €250,000 variable rate mortgage. Three rate rises it could end up costing a typical household on a variable rate an extra €1,000 a year in higher repayments.
Experts warned borrowers there could be a hike of 0.25 percentage points in July, to be followed by another two 0.25 percentage point increases before the end of the year, piling more pressure on homeowners. The ECB refinance rate, which trackers are priced off, could rise by six to eight times by the end of 2023. This would see that rate go from 0pc currently to 1.5pc, according to Davy Stockbrokers economist Conall MacCoille.
Rates could rise in July, September and December, according to Austin Hughes of KBC Bank Ireland.
“A number of ECB officials have signalled that they would like to get the deposit rate into positive territory this year. That implies two to three ECB policy rate rises – the ones that impact tracker and variable rates – this year.
“This will mean higher borrowing costs for a significant number of people.”
An ECB rate rise will make variable and tracker mortgages more expensive. It will also mean dearer new fixed rates. Some 60pc of homeowners are on a combination of variable and tracker rates, the Central Bank says. About 200,000 homeowners are on standard variable rates and are set to pay more with rates. Around 250,000 are on trackers, which rise or fall when the ECB rate changes.
ECB policymakers are under pressure to act due to a surge in inflation in the Eurozone.
Whether you are looking to switch lender currently, a first time buyer or moving home, should you have any concerns about the issues raised in this article, or investing in a buy-to-let property, why not chat to a Seaspray Mortgage adviser today about finding the mortgage that’s right for you:
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