Despite anticipated rate cuts from the European Central Bank (ECB), new mortgage agreements in Ireland saw an average interest rate rise in January. The weighted average rate grew to 4.27 per cent, an increase of eight basis points from the previous month and 134 basis points from the same period last year, as per data released by the Central Bank. Meanwhile, the euro area saw a decrease, with the average rate dipping to 3.96 per cent. Thus, Ireland had the seventh highest rates across the euro zone.
Despite expectations of ECB rate cuts potentially easing mortgage rates, ECB President Christine Lagarde stated that restrictive borrowing costs would persist until inflation stabilises. The predominance of fixed-rate mortgages, representing 74 per cent of the new home loan market, saw an average rate of 4.20 per cent in January, up by six basis points from December.
There was a significant decrease in the total volume of new mortgages in January, with a fall to €542 million. This represented a decrease of 45 per cent compared to the previous month and a 28 per cent decrease from the previous year, according to the Central Bank.
Delta Capita’s head of retail banking service delivery, Ronan Brennan, remarked that the rate increase may lead to an escalation in home loan arrears, due to a number of homeowners having their fixed rate expiring soon. The Central Bank estimates that approximately 70,000 homeowners (or one in ten residential mortgages) will have their fixed rates expire between June 2023 and June 2024.
Daragh Cassidy, head of communications at the price comparison website Bonkers, speculated that the ECB is likely to implement interest rate cuts from June, possibly resulting in three to four reductions of 0.25 percentage points by year-end.
“He stated that those utilising tracker services will start reaping the rewards of any reductions swiftly. “The situation isn’t as straightforward for the rest of the customers. To date, the primary loan providers have delivered less than 50% of the ECB rate increments. Hence, it’s improbable that AIB, Bank of Ireland, and PTSB will promptly react to any rate slashes,” he explained.