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The average interest rate applied to new mortgage deals in Ireland crept higher again in January despite speculation the European Central Bank (ECB) could announce up to four rate cuts later this year.

The weighted average rate on new Irish mortgage agreements increased by eight basis points to 4.27 per cent in January compared to the previous month, and was up 134 basis points year-on-year, according to Central Bank data published on Wednesday.

The equivalent euro area average dropped by 10 basis points to 3.96 per cent.

This meant Ireland had the seventh highest rates in the euro zone. Mortgage rates have begun to ease in recent weeks in some countries as the cost of raising funds on capital markets eases in advance of an expected drop in ECB rates.

ECB president Christine Lagarde has warned, however, that borrowing costs will remain restrictive for as long as necessary until inflation reverts to a more stable path.

Fixed-rate mortgages, which constitute most of the new home loan market (74 per cent), had an average rate of 4.20 per cent in January, up 6 basis point from December.

The total volume of “pure new mortgage agreements” fell to €542 million in January, a 45 per cent decrease from the previous month, and a decrease of 28 per cent annually, the Central Bank said.

Ronan Brennan, head of retail banking service delivery with Delta Capita, said the latest increase in rates highlighted by the Central Bank would inevitably lead to an increase in home loan arrears – particularly given the number of homeowners set to see their fixed rate expire.

The Central Bank has estimated that between June, 2023 and June, 2024, around 70,000 homeowners will see their fixed rates expire – the equivalent of about one in ten residential mortgages.

“Many of these 70,000 people are already seeing, or will soon see, a big increase in their monthly mortgage bills because invariably, they are rolling off relatively low fixed rates and on to much higher ones,” Mr Brennan said.

Daragh Cassidy, head of communications at price comparison website Bonkers, said: “Looking forward, it now seems highly likely that the ECB will start to cut interest rates from June and we could see three or four 0.25 percentage point cuts by the end of the year.”

He said tracker customers will benefit almost immediately from any cuts. “For everyone else, it’s less clear cut. The main lenders have passed on less than half of the ECB rate hikes to date. So it’s unlikely AIB, Bank of Ireland and PTSB will respond to any rate cuts immediately,” he said.

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