Homeowners face the biggest rise in mortgage costs in more than a decade, with three interest rate increases now likely by the end of the year.
The succession of hikes could cost homeowners an extra €1,000 a year in higher repayments.
The European Central Bank (ECB) is expected to raise rates in July, September and December.
It last raised interest rates in August 2011. The news comes as the cheapest mortgage lender in the market here, Avant Money, raised its fixed rates yesterday in a strong signal that borrowers face higher costs.
Avant Money, which shook up the market here when it launched mortgages for less than 2pc at the end of 2020, is increasing its five-, seven- and 10-year fixed rates for new borrowers by between 0.2 and 0.3 percentage points. The move by the Leitrim-based lender, owned by Spain’s Bankinter, will see the popular seven-year fixed rate rise from 2.05pc to 2.15pc for a borrower with an 80pc loan to value.
It means a homeowner on a €250,000 mortgage will pay an extra €444 a year. The lender is reducing the rates on its 25- and 30-year mortgages. In March, ICS Mortgages became the first lender in years to hike its lending costs, increasing new fixed rates by up to 0.45 percentage points. Brokers have been told by Avant Money that it is seeing “considerable upward pressure on funding costs”. This meant the option to fix for longer may be attractive to borrowers, it said.
Brian Lande, head of mortgages at Avant Money, said there was upward pressure on interest rates, but the lender would continue to offer rates from 1.95pc.
The move comes as economists warned there could be three European interest rate rises this year and a number next year. Rates could rise in July, September and December, according to Austin Hughes, of KBC Bank Ireland. This will affect around 450,000 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 terms and will make new fixed rates more expensive. A 0.25 percentage point rise in the ECB rate could add €380 a year to the cost of a typical €250,000 variable rate mortgage.
Three rate rises could end up costing a typical household on a variable rate an extra €1,000 a year. Experts warned borrowers there could be a hike of 0.25 percentage points in July, followed by another two 0.25 percentage point increases before the end of the year.
The ECB refinance rate, which trackers are priced off, could rise by six to eight times by the end of next year. This would see that rate go from the current 0pc to 1.5pc, Davy Stockbrokers economist Conall Mac Coille said. 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.
A number of ECB officials have signalled 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 affect tracker and variable rates – this year.
“This will mean higher borrowing costs for a significant number of people,” Mr Hughes said.
An ECB rate rise will make variable and tracker mortgages more expensive. It will also mean new fixed rates are more costly. Around 60pc of homeowners are on a combination of variable and tracker rates. About 200,000 homeowners are on standard variable rates and are set to pay more. 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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