Mortgage rates climb with Lagarde hinting at ECB hike in July

Mortgage interest rates have started to climb ahead of what is expected to be a rise in European lending rates in the coming months.

he new rate figures come as European Central Bank President Christine Lagarde today hinted that the Frankfurt-based institution could raise interest rates from historic lows as early as July as the Inflation in the Eurozone is skyrocketing.

Mortgages there continue to be among the most expensive in the euro zone, according to March figures from the Central Bank of Ireland.

Irish mortgage rates remain the second highest in the eurozone, meaning borrowers are paying €2,100 a year more than the currency bloc average.

March figures show Irish borrowers, which include first-time buyers and movers, paid an average rate of 2.78% in the month.

This is an increase of 0.2 percentage points from the previous month.

And there was a huge increase in the average rate in the euro zone. It rose 0.9 percentage points in March to 1.46%, the highest level in more than two and a half years.

Experts said the medium-term outlook calls for higher rates.

Ireland’s 2.78pc rate on new mortgages in Ireland is second only to Greece in the eurozone of 19 countries.

Last week, the cheapest lender in the market, Avant Money, said it was raising its fixed rates. It comes after ICS Mortgages increased its rates.

However, Permanent TSB, Bank of Ireland and EBS have recently cut some of their rates.

The rate change moves precede an expected rate hike by the European Central Bank (ECB) this summer, with a total of three hikes now possible by the end of this year.

Three ECB rate hikes could add €1,000 to the cost of servicing a typical one-year variable or tracker mortgage. It would also make the new fixed rates more expensive.

Daragh Cassidy of price comparison site Bonkers.ie said inflation was 7.5% in the euro zone, making rising rates a certainty.

“Central banks in the US, UK, Australia and New Zealand have all hiked rates recently to help curb rapidly rising prices, and it’s only a matter of time before that the ECB does not feel obliged to do the same. But when and by how much is the big question.

However, he said Irish mortgage rates are so out of step with the ECB base rate that we could see a slight increase in the ECB rate being absorbed by lenders rather than being passed on to floating rate consumers. .

“It will depend somewhat on the competitive pressures faced by banks,” Cassidy said.

But this is not the case with trackers which go up and down when the ECB rate moves.

He said the rise in the average Irish mortgage rate could reflect large numbers of homeowners locking themselves into more expensive longer-term fixed rates ahead of an ECB decision.

“Rapidly rising house prices have likely pushed more first-time buyers into a higher loan-to-value range as well.”

The average mortgage for a first time buyer in Ireland is around €270,000.

This means that someone who borrows this amount over 30 years pays around €176 more per month, or more than €2,100 per year, compared to our European neighbours.

Banks there are defending higher mortgage rates on the grounds that mortgages in Ireland are considered risky, in part because banks struggle to enforce collateral if a loan is overdue.

This means Irish banks need to hold around three times the level of capital to hedge against potential loan losses compared to banks in the rest of Europe.

About Mike Stevenson

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