What does ECB rates holding high mean for Irish mortgage holders?

European Central Bank president Christine Lagarde warned on Friday that the ECB would not be cutting rates for at least “the next couple of quarters”, which has implications for Irish borrowers.

Ms Lagarde said on Friday that euro-zone inflation would come down to its 2 per cent target if interest rates were kept at their current levels for “long enough”.

She cautioned that “‘long enough’ has to be long enough”, and that ECB interest rates were unlikely to move downwards any time soon.

“It is not something that [means] in the next couple of quarters we will be seeing a change,” she said.

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The ECB last month left its benchmark deposit and lending rates unchanged, ending a series of 10 consecutive increases that has taken the deposit rate from a record low of minus 0.5 per cent last year to an all-time high of 4 per cent in an attempt to tame inflation. Its lending rate stands at 4.5 per cent.

Daragh Cassidy, spokesman for price comparison website and mortgage broker Bonkers.ie, said the ECB was not likely to reduce rates until “well into next year or maybe even 2025″, and first-time buyers or mortgage holders who might be coming to the end of a current fixed term should still budget for higher mortgage rates next year.

“Regardless of what the ECB does, the next move for mortgage rates in Ireland is probably going to be up. The main lenders, Bank of Ireland, PTSB and AIB, still have to react to a lot of the previously announced rate increases ... A lot of banks haven’t had to borrow at the higher interest rates yet. The longer these higher interest rates go on, the more banks have to start borrowing at 4.5 per cent, and that is eventually going to feed through to higher interest rates,” he said.

Mr Cassidy said that while it is important to seek financial advice from a broker, moving to a fixed rate might be a good option for those looking for peace of mind, or those with only a short time left on their mortgages.

[ ‘Far, far too early’ to talk about ECB rate cuts, says Central Bank governor ]

Sometimes people can get a little bit obsessed with whether rates are going to go up or down in the near future, or whether they’ll lose money in the longer term by fixing. But there’s a lot to be said for having certainty. I think that sometimes just the peace of mind you get with a fixed rate can mean a lot to people, even if it means that they end up paying a little bit more,” he said.

“If you’re currently on a fixed rate and only have a short amount of time before you come to the end of the fixed-rate term, it’s worth seeing if you can lock into a new fixed rate now rather than in a year or 18 months’ time when interest rates might be even higher, as the breakage fee is likely to negligable,” he said.

However, he said that moving to a variable rate for a year or so could be a “good decision” for people who could afford higher mortgage repayments while they wait to see if fixed rates come down.

Meanwhile, Brendan Burgess, founder of consumer forum Askaboutmoney.com, said the remarks by Lagarde “remove the urgency” for people to move to a fixed rate if they haven’t already.

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“While she’s saying we don’t expect rates to go down soon, it seems fairly clear that they’re not going to go up either, that’s what I would read into that and what the market expects. At the moment there is not that big a difference between variable rates and fixed rates, so there is not really that much value in fixing,” he said.

In terms of those who still hold tracker mortgages, he said there is probably “no point” in fixing at this point.

“Certainly if you’re on a tracker at the moment you’re probably paying the highest rate that you have been paying for a long time. Earlier in the year there was a very strong recommendation from posters on Askaboutmoney.com that people should fix. In some cases it was a good idea to do so. I would say now for some people they have left it too late, there’s no point in giving up your tracker,” he said.

Trevor Grant, chairman of the Association of Irish Mortgage Advisors (AIMA), said mortgage holders who are approaching the end of a fixed-rate term should be thinking well in advance about how they can set themselves up to get the best deal.

[ ECB must keep rates at or near 4% until 2024 to get inflation down, warns IMF ]

“There’s over 100,000 mortgage fixed rates to come to maturity over the next 12 months or so. People who are switching have been on rates of anything from 2.3 to 2.75 per cent for the last three to five years, they’re coming off now to rates of generally 4 per cent plus,” he said.

“A lot of those people have very good net incomes, but are not saving. They’re paying their mortgage, they have some money set aside in case there’ll be a problem, but they’re living life. When their fixed rates mature, unless they can prove to a new lender that they can meet the required repayment capacity level at the higher rates, they’re going to be stuck with their existing lender. That might be fine, your existing lender might offer the best or comparable to the best rate in town. But you could be stuck with a lender that’s offering you quite a high rate, and then you’re in real trouble,” he said.

Mr Grant advised mortgage holders to contact a broker more than six months before their fixed rate matures, to seek advice about what they might need to show or save to meet requirements and switch to the best deal.

“Taking all that into consideration, I think for anyone coming off of a fixed rate now, they just need to have a look at what’s available, and make a decision on whether their existing lender can offer the best terms available, or can they move and get a better deal,” he said. – Additional reporting: Financial Times