When the governing council of the European Central Bank (ECB) meets in Frankfurt on Thursday, as many as 500,000 holders of variable-rate and tracker mortgages will be nervously awaiting the news that most consumer experts believe to be more or less true. .
With inflation hovering around five times its target, the ECB is widely expected to raise interest rates for the third time since the summer to try to rein it in, hopefully without plunging the continent into recession.
Daragh Cassidy’s price comparison website bonkers.es he believes it is “almost a guarantee” that the ECB will raise rates another 0.75% to 2%.
And it gets worse: “After that, rates are likely to rise another 0.5 percent in December, and likely to hit 3 percent or more by the middle of next year,” he says.
The most recent increase will mean someone on a tracker who has €200,000 remaining on their mortgage for 10 or 15 years will now pay around €180 extra each month compared to the start of the year. That equates to €2,160 a year.
If rates hit 3 percent next year, that refund could increase to close to €300 a month, or a whopping €3,600 a year.
For now all the major banks have refrained from raising their variable rates, and only AIB has raised its fixed rates, by just 0.5 percent. However, according to Cassidy: “It’s unlikely to last.”
So what does it mean to you? Firstly, as Brokers Ireland director of financial services Rachel McGovern points out, if you have a tracker mortgage you will be hit “immediately” as these rates are tied to the ECB.
“So it depends on whether you can take that raise,” she says. “If you can’t, and many will struggle with the rising cost of living, you should consider switching to a safer long-term fixed rate.
“There may be a five- or 10-year fixed rate that is at or around what you’re paying right now.
“However, what I would say is that many lenders are also moving to raise other rates, so unfortunately they are all reacting to the latest ECB hikes. Although they don’t have to convey that to the consumer, they are doing it.”
Brendan Burgess, founder of consumer website questionaboutmoney.comHe says that anyone paying a margin of less than 1 percent should probably keep their tracker.
However, he says the Irish mortgage market is “so dysfunctional” at the moment that anyone on a variable rate should move to a fixed rate.
“Fixed rates are much lower than variable rates,” he says. “It should be the other way around, but it isn’t. So anyone who still has a variable rate should lock in their mortgage rate. Around five years seems to be where the best value is.
“The exception to that would be someone who is looking to change in about two years or the near future. They may fix you for a shorter period because they don’t want to face a break fee.
“If you have a fixed rate that’s due in February, the break fee is going to be pretty low, so those people should get out of the fixed rate and lock it back in for five years. This is very important.
While Burgess doesn’t think it’s a certainty that rate increases will trickle down to consumers, Marian Finnegan, general manager of Sherry FitzGerald’s residential and advisory division, notes there have been moves in that direction in the recent past.
“The position for those with fixed and variable rates will vary a bit,” she says. “The mainstay banks absorbed the ECB’s first increase in its fixed and variable rate products. However, the September increase resulted in rate increases.
“AIB raised all of its fixed rates for new mortgage customers by 0.5 percent, while the other mainstay banks are expected to raise their rates in the coming weeks. Non-bank lenders raised some of their product rates ahead of the ECB’s first hike in July.
“Following the September increase, some announced tighter restrictions on their lending until financial markets normalize, in addition to increasing their variable rates, while others increased their fixed and variable rates by between 1.5% and 2%” .
However, it concludes on a more positive note: “Despite the bullish move, prospective property buyers can still get very attractive long-term rates for two, three, five or 10 years that offer complete certainty and stability in terms of affordability. . .”