Borrowers and would-be homebuyers should be wary of making financial decisions “based on the hope that European Central Bank (ECB) rates will drop further or indefinitely”.
That’s according to Trevor Grant, chairman and co-founder of Irish Mortgage Advisors.
Mr Grant was speaking after the Central Bank published its latest monthly data on interest rates, showing Ireland remained one of the more expensive jurisdictions in the euro zone for mortgages.
The figures indicated that the weighted average interest rate on new mortgages here fell marginally to 3.6 per cent in June.
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This was down one basis point from 3.61 per cent in May and 51 basis points lower in annual terms. The equivalent euro zone average was 3.29 per cent, the Central Bank said, making Ireland the seventh most expensive jurisdiction in the bloc.
The figures come after last month’s decision by the ECB to pause a recent run of interest rate cuts. Analysts now anticipate that there might be just one more cut this year, in December.
“This significant shift in ECB policy could not only mark the end of its rate cutting cycle, it could also herald that ECB rate hikes might be on the cards in late 2026, particularly if inflation starts to edge upwards in the EU again,” Mr Grant said.
“So mortgage borrowers and would-be house buyers should be mindful that the pace of further mortgage rate cuts is likely to slow or even come to an end,” he said. “Borrowers should therefore avoid making large financial decisions based on the hope that ECB rates will drop further or indefinitely.”
He said there were many reasons why Ireland remains one of the more expensive euro zone countries for mortgages.
“For example, Irish lenders are required to hold more capital than many of their European peers,” he said.
“Also, when a borrower defaults on a mortgage, Irish lenders have stated that they often find it more difficult than other European lenders to take control of and sell off the assets that were pledged as collateral to secure the mortgage,” he said.
“Notwithstanding all this, there is still room for improvement and slowly competition is bringing rates down.”
Rachel McGovern, deputy chief executive at industry group Brokers Ireland, said while more competition is entering the mortgage market the benefit may become more evident later in the year.
The Central Bank figures also show that Irish consumers had €166 billion in savings with Irish banks as of last month. Of that, over 85 per cent – or over €142 billion – is held in overnight deposit accounts which are attracting a meagre 0.13 per cent in interest on average.
Retail banks here have been criticised for failing to increase their deposit rates in line with ECB levels while reporting big annual profits.
The figures also show that an increasing number of new mortgage holders are opting for fixed rates, which now constitute 85 per cent of all new mortgage contracts.
“Mortgage borrowers are seeking security,” Ms McGovern said. “With property prices continuing to increase, they are taking on ever higher levels of debt.”
