Irish mortgage holders warned to brace for sequence of payment hikes

Data shows average interest rate applied to new mortgages remained roughly unchanged in August

Mortgage holders in the Republic have yet to feel the full impact of higher interest rates because the main lenders — AIB, Bank of Ireland and Permanent TSB — are still to the pass on any of the European Central Bank’s rake hikes.

However, consumer advocates are warning that the situation will not last and that borrowers should brace themselves for significant increases in their monthly repayments in the coming months.

Central Bank figures published on Wednesday show the average interest rate on new mortgages in the State were roughly unchanged at 2.64 per cent in August.

The equivalent Euro area average rate, however, rose by 13 basis points to 2.21 per cent in August, its highest level in five years and almost double the rate this time last year.


“While rates have begun to shoot up elsewhere in Europe they’ve remained remarkably steady here for now. At least among the main lenders,” Daragh Cassidy, head of communications at price comparison website, said.

“Unfortunately for homeowners the ECB has signalled that it will continue to raise rates over the coming months. It’s almost a given that the ECB will raise rates by another 0.75 per cent to 2 per cent when it meets at the end of the month and rates may even reach close to 3 per cent in early 2023,” he said.

“Most of this increase will eventually be passed on to mortgage customers. How much will somewhat depend on the competitive pressures the banks feel under,” Mr Cassidy said.

Will interest rates peak sooner than expected?

Listen | 33:47
Although sterling has rallied since the British government’s mini-budget announcement, the bond market remains disturbed.  All eyes are now turning to the ECB and how it will react to the turbulence. The effect on interest rates will play out in the coming weeks, but could they peak sooner than expected?  To discuss the impact of the mini-budget on the global economy, Ciaran Hancock is joined by Joe Gill of Goodbody Stockbrokers.  Irish Times Economics Correspondent, Cliff Taylor, also takes a look at what it means from an Irish perspective.  We also examine the latest bumper exchequer returns, and whether they may help offset what looks like an impending consumer-recession.  

Ironically, the new era of higher borrowing costs has seen the differential between mortgage rates here and those in the rest of Europe, a longstanding controversy, diminish.

The latest Central Bank data means the Republic has the eighth highest mortgage rates in the euro zone behind countries such as Germany and the Netherlands.

However, households in those countries tend to take out more much longer-term fixed rates compared to Irish households — of up to 20 years or more — which usually have higher rates.

Rachel McGovern, director of financial services at umbrella group Brokers Ireland said: “While the ECB rate increases so far of 1.25 per cent across July and August immediately impacted customers on tracker mortgage rates, the main banks have not yet passed on these increases to other borrowers.”

She said every 0.25 percentage point increase adds €12 per month or €147 per year for every €100,000 borrowed.

“We would hope that in the current climate where consumers are struggling, lenders would not pass on these increases. However we could be entering a sustained period of high inflation,” she said.

“The Central Bank is projecting an inflation rate of 6.3 per cent for next year and in this scenario interest rates are likely to grow further in the short-term and could remain elevated for quite some time. Unfortunately no one can really predict with certainty what will happen,” Ms McGovern said.

Her comments were echoed by Joey Sheahan, head of credit at online broker, who said consumers in the State had yet to see the full impact of the ECB rate rises.

“However, in recent weeks some lenders have announced increases to their new business rates, while other lenders have said that their rates are under review. Unfortunately, there could well be higher rates for already — strapped mortgage holders coming down the tracks,” he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times