Interest rates on new Irish mortgages well above euro average, as ECB set to hike rate

The average interest rate on new mortgages in the Irish market was 2.77 per cent in April 2022, down from 2.8 per cent in the same month last year, but still well above the euro zone average of 1.59 per cent.

Figures from the Central Bank show that the weighted averaged rate on new fixed-rate mortgage agreements, which accounted for 82 per cent of all new agreements during the month, was 2.59 per cent. This was down from 2.63 per cent in April 2021.

For new variable-rate mortgage agreements, interest rates averaged 3.55 per cent in April, up from 3.42 per cent a year earlier. This average has nudged up in recent months.

While the gap between the average Irish mortgage interest rate and the euro zone average has narrowed lately — in large part because the euro average has risen — the 1.18 percentage point margin above the euro average will see an Irish borrower paying €2,000 per year more than their euro-zone counterparts, Brokers Ireland said.

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The figure is based on a €300,000 mortgage repaid over a 30-year term. If the gap was sustained over the lifetime of the loan, Irish borrowers would pay almost €65,000 more in interest than their euro-zone equivalent.

Rate hike

The European Central Bank is expected to increase interest rates in the coming months in a bid to tackle soaring inflation, which will lead to increases in repayments for borrowers who have not locked into a fixed rate. But the fixed rates offered to new borrowers are also likely to climb in response to the new environment.

Rachel McGovern, director of financial services at Brokers Ireland, said there was “little doubt” that the euro zone was “on the cusp of new era” for interest rates and this should prompt borrowers to review the rate they are paying.

New mortgage agreements amounted to €605 million in April 2022, according to the Central Bank. This figure is up 9 per cent on April 2021 but down 9 per cent on the previous month.

Renegotiated mortgages amounted to €499 million and had a weighted average interest rate of 2.59 per cent, down from 2.83 per cent the previous month.

Meanwhile, the average interest rate on new consumer loans was 7.08 per cent in the month. Including renegotiations, new consumer lending stood at €184 million, up 22 per cent year on year.

The ECB cut its main refinancing rate to a historic low of 0 per cent in March 2016, while its deposit interest rate has been at minus-0.5 per cent since September 2019, having initially turned negative in June 2014.

The central bank is expected to confirm a more hawkish stance on interest rates after a meeting of its governing council on Thursday.