Irish mortgage rates hit decade high above 4%

The average interest rate attached to new mortgage agreements in Ireland edged above 4 per cent in June, the highest level in almost a decade, tightening the squeeze on borrowers.

The Central Bank said the weighted average interest rate on new mortgage contracts at the end of June was 4.04 per cent, an increase of 20 basis points (a fifth of a percentage point) on the previous month and up 136 basis points on this time last year.

The monthly jump was the second largest in the euro zone and comes on the back of an aggressive sequence of rate hikes by the European Central Bank (ECB) over the past year. The latest data predate the ECB’s July interest rate increase and recent rake hikes from lenders here, meaning the average is likely to increase further.

The equivalent euro zone average rose by nine basis points to 3.79 per cent in June, three times what it was two years ago. Rates however varied hugely across the currency zone – from as low as 1.93 per cent in Malta to as high as 6.02 per cent in Latvia.

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Lenders in the Republic were initially slow to pass on the uptick in interest rates internationally to customers here but have begun to catch up. Bank of Ireland recently hiked its fixed rates for the fourth time in less than a year, while AIB raised its fixed rates in June and its variable rates are due to go up next week.

A 0.25 percentage point increase typically adds about €25 a month to repayments on a €200,000 mortgage. When all the rake hikes since July 2022 are taken into account the increase for tracker mortgage holders with €200,000 remaining is about €400 a month or almost €5,000 a year.

“The big hike in interest rates from the ECB over the past year is now being felt by mortgage customers in Ireland,” said Daragh Cassidy. head of communications at comparison site Bonkers.ie. “The average rate is now almost 1.5 percentage points higher than it was near the end of last year. But since these figures were compiled we’ve seen yet more rate hikes from all the main lenders, meaning the average rate for someone applying for a mortgage today is closer to 4.5 per cent or 4.75 per cent.”

Prospective mortgage holders and those on trackers in particular are being warned that the outlook is for rates to go even higher over the coming months. The ECB raised its main lending rate to 4.25 per cent last month, marking a ninth straight increase in 12 months, as it continues the most aggressive series of hikes to fight inflation in its history.

“Currently there’s still a 50/50 chance of at least one more quarter point rate hike from the ECB – in either September or later in the year. This would take the ECB’s main lending rate to 4.5 per cent, which means the average tracker customer could be paying a rate of around 5.6 per cent or 5.7 per cent before the end of the year,” Mr Cassidy said.

Rachel McGovern, director of financial services at Brokers Ireland, said that with little movement on savings rates “lenders are having a bonanza right now as we’ve seen in their profit margins for the first six months of the year”.

She said the diminution in competition with the exit of both KBC and Ulster Bank was not helping. And she said it was notable that, at 5.28 per cent variable interest rate, non-bank lenders had a margin of 1.64 per cent above the pillar banks. “Without sufficient competition these figures demonstrate what unbridled control over interest rates deliver,” she said