Q&A Dominic Coyle
Investment property mortgage rates are rising
I currently have a variable rate mortgage with Danske Bank on an investment property. Rates on these mortgages are rising to over 5 per cent in July. My question is, do you think they will rise further than this ?
A friend who recently got approval for a mortgage said the bank he went to stress- tested repayments on rates over 6 per cent and I am concerned that Danske will be at this level at some future date, in which case now is the time to fix the rate.
Mr DO’H, Dublin
If they can, they will. Danske, like all the mainstream banks, are struggling to make money on their mortgage book. Danske, or National Irish Bank as it was, may not have been as adversely affected by tracker mortgages as some of its peers but, by Danish standards, the recklessness of lending at the Irish operation puts it in the same sphere are the old Bank of Scotland Ireland.
Management at headquarters is under huge pressure and there will be little sympathy there for hard-pressed borrowers with mortgages on investment properties.
And, looking around, 5 per cent on investment mortgage variable rates is not the highest rate available in the Irish market.
While banks cannot touch tracker mortgages – at least not until the new code of conduct on mortgage arrears is announced later this week – they are forced to look elsewhere to pad their margins. The first port of call is the variable rate. The margin on these has been rising consistently in recent years, both by banks failing to pass on the limited decrease in ECB rates to historic lows and the arbitrary rising of rates.
With banks still struggling to make money on their mortgage books, there is nothing to suggest the rates are likely to fall further. Could they rise to 6 per cent? Certainly, especially if economies improve and the ECB starts raising rates again.
As Danske gives you no loan-to-value discount for low ratios on investment mortgages, your only option is to fix. Certainly, if you are finding the latest rate rise alarming, it might be time to look at what fixed rates might offer in terms of peace of mind and longer-term planning – especially as you are going to find it difficult to get another lender to take on an investment mortgage in the current scenario.
However, Danske’s fixed rates for investors are currently between 5.11 per cent (two-year) and 5.55 per cent (five year), so they’re not giving them away.