The two main Irish banks have signalled they are reviewing non-tracker mortgage pricing after the European Central Bank (ECB) unveiled a second large hike in its key rates in less than two months.
However, there appeared to be a reluctance in the industry to be the first to increase variable and new fixed-rate rates, even after some non-bank lenders hiked the cost of certain products in recent months.
The ECB’s governing council decided to increase its main rates by 0.75 of a percentage point, following on from a 0.5 point move in late July, as the central bank seeks to rein in soaring inflation. ECB staff now expect inflation will average 8.1 per cent this year, before easing to 5.5 per cent — compared to the bank’s target of about 2 per cent.
The official rate hikes automatically increase the cost of ECB tracker mortgages. The two combined 1.25 percentage points of ECB increases raise the monthly payments on every €100,000 borrowed under a tracker loan with 15 years still to run by €56.63 to €655, according to Joey Sheahan, head of credit at only broker MyMortgages.ie. That is based on tracker products priced at a 1 percentage point premium to the ECB rate.
[ ECB raises interest rate by three quarters of a percentage pointOpens in new window ]
If banks were to pass on the full ECB hikes to variable-rate customers, it would push up monthly payments on every €100,000 borrowed by €63.57 to €790. That is based on a loan with 15 more years to run and a starting rate of 3.75 per cent.
A spokesman for Bank of Ireland said that, aside from the automatic increase in tracker rates, “no decision” has been made in relation to other products.
“The bank continues to keep all rates under ongoing review and will clearly communicate any future rate change decisions at the appropriate time,” he said.
| IMPACT OF ECB INTEREST RATE INCREASES | |||
|---|---|---|---|
| per €100,000 of mortgage outstanding | Monthly Repayment e the ECB starts rising rates | after July’s 0.5% increase ** | with September’s 0.75% increase** |
| Tracker - one % point over ECB with 15 years remaining | €598.45 | €620.74 (+€22.29) | €655.08 (+€56.63) |
| * Standard variable of 3.75% with 15 years remaining | €727.22 | €752.28 (+€25.06) | €790.79 (+€63.57) |
| * Standard variable of 3.75% with 25 years remaining | €514.13 | €541.74 (+€27.61) | €584.59 (+70.46) |
| * Based on average SVR in June 2022: Central Bank ** Irish banks have yet to raise SVR rates at all | |||
| Source: Joey Sheahan, head of credit at online broker MyMortgages.ie |
This contrasts with Bank of Ireland’s statement at the time of the ECB’s July move, when it said that all of its lending products, other than trackers, were unaffected by the official rate increase.
A spokesman for AIB said: “AIB did not increase standard variable and fixed rate mortgages when ECB interest rates increased in July and we continue to keep our rates under review.”
However, the third-largest mortgage lender, Permanent TSB, said that its fixed and variable rates remain unchanged following the ECB decision. “The bank is committed to offering rates that are competitive and will continue to keep its fixed and variable mortgage rates under review as market conditions evolve,” a spokeswoman said.
The average new Irish mortgage rate stood at 2.63 per cent in June, compared to 1.90 per cent across the euro zone. But while Irish rates had fallen by 0.06 of a percentage point over the previous 12 months, wider euro zone rates had increased by 0.63 of a point, reflecting the fact that continental European banks are more reliant for funding on capital markets, where interest rates jumped in recent times.
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Non-bank lender Avant Money, which increased its fixed rates last month, said it has “no announcement currently planned” on its mortgage pricing. Rival ICS Mortgages, which moved recently to tightened its lending limits and raise variable rates, said it will “carefully review the potential impact” of the latest ECB decision. Finance Ireland, the third non-bank mortgage lender in the market, declined to comment.
“We can’t know where rates will go, but with high inflation it’s unlikely to be calmed by a few small hikes, so people need to think carefully about their mortgage situation,” said Karl Deeter, founder of mortgage broker platform OnlineApplication.com.
“There are still good rates available, our rates are actually lower than German rates at the moment, but that may not last. So, talk to your local broker today and take some control over the things you can control, because mortgages, unlike energy prices, are something most borrowers can have some control over.”
Rachel McGovern, director of financial services at Brokers Ireland said: “If there is a positive it is that there are still good long-term fixed interest rates in the market, rates that historically were never as good as they are now. In fact, it is only in recent years we’ve seen truly long-term fixed rates.”
There are currently 15-year fixed rates available in the market of as low as 2.9 per cent, according to Bonkers.ie, the price comparison website.
