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Mortgage rates creeping up with Lagarde hinting at July ECB rise

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Ireland has some of the most expensive new mortgages in the Eurozone. Stock image

Ireland has some of the most expensive new mortgages in the Eurozone. Stock image

Ireland has some of the most expensive new mortgages in the Eurozone. Stock image

MORTGAGE interest rates have started to creep up, ahead of what is expected to be a hike in European lending rates in the coming months.

The new figures on rates come as European Central Bank president Christine Lagarde hinted today that the Frankfurt-based institution could raise its interest rates from historic lows as soon as July as inflation in the Eurozone soars.

Mortgages in this country continue to be among the most expensive in the Eurozone, figures for March from the Central Bank of Ireland show.

Irish mortgage rates remain the second highest in Eurozone, which means borrowers here are paying €2,100 a year more than the average in the currency bloc.

Figures for March show that Irish borrowers, which includes first-time buyers and moves, paid an average rate of 2.78pc in the month.

This is up by 0.2 percentage points from the previous month.

And there has been a huge rise in the average rate across the Eurozone. It was up by 0.9 percentage points in March to 1.46pc, the highest level in over two-and-a-half years.

Experts said the medium-term outlook is for rates to increase.

The Irish rate of 2.78pc on new mortgages in Ireland is second only to Greece in the 19-country Eurozone.

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

However, Permanent TSB, Bank of Ireland and EBS all recently reduced some of their rates.

The rate change moves come ahead of an expected rise in European Central Bank (ECB) rates this summer, with a total of three rises now possible by the end of this year.

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

Daragh Cassidy of price comparison site Bonkers.ie said inflation was 7.5pc in the Eurozone, making rate rises a certainty.

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“The US, UK, Australian and New Zealand central banks have all raised rates recently to help rein in rapidly-increasing prices, and it’s only a matter of time before the ECB feels compelled to follow suit. But when and by how much is the big question.”

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

“It will somewhat depend on the competitive pressures the banks feel under,” Mr Cassidy said.

But this is not the case with trackers which rise and fall when the ECB rate moves.

He said the rise in the average Irish mortgage rate may reflect a large number of homeowners locking into more expensive longer-term fixed rates in advance of a move by the ECB.

“Rapidly rising house prices are likely to have pushed more first-time buyers into a higher loan-to-value rate band also.”

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

This means someone borrowing this amount over 30 years is paying around €176 extra a month, or over €2,100 a year, compared to our European neighbours.

Banks in this country defend the higher mortgage rates on the basis that mortgage lending in Ireland is considered risky, partly because banks have difficulty enforcing security if a loan goes into arrears.

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


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