Business

Mortgage rates hit highest level since August 2017

Irish interest rates may be close to their peak ahead of an expected ECB cut next month

The gap between Irish and euro area mortgage interest rates is at its widest level since July 2022.

Peter Flanagan
Thu May 9 2024 - 15:47

The average interest rate on a new home loan hit its highest level in close to seven years, and Ireland now has the sixth-highest average mortgage interest rate in the EU, according to the latest Central Bank data.

The weighted average interest rate on new mortgage agreements rose two basis points to 4.31 per cent at the end of March, the Central Bank said in a report on Thursday. That was 0.77 percentage points higher than at the same point a year ago, largely tracking European Central Bank (ECB) increases over that time.

The monthly increase came at the same time the average rate on a home loan in the euro area fell eight basis points to 3.84 per cent.

“Irish mortgage rates are now at their highest level since at least August, 2017,” Daragh Cassidy of price comparison site Bonkers.ie said in a statement. “The gap between Irish and euro zone rates is now at its widest level since July 2022,” he added.

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[ The outlook for interest rate cuts is changing - so should Irish borrowers be worried? ]

The data is likely to increase pressure on Irish banks to cut mortgage rates as soon as the ECB starts to reduce its main interest rates. The ECB is expected to start doing that at its meeting next month, although the overall pace of rate cuts is likely to be slower than had been expected just a few months ago, with inflation remaining above the bank’s 2 per cent target rate.

This may be the peak for mortgage rates, Mr Cassidy said, pointing to cuts by AIB, PTSB and Bank of Ireland in recent weeks.

“These lower rates should feed through into the figures over the coming weeks. Avant Money has also cut its rates. However the lender isn’t included by the Central Bank in the data at present,” he said. “It still seems highly likely that the ECB will cut rates at least more than once this year.”

[ Latest euro zone inflation figures suggest ECB will move slowly on rates ]

The interest on fixed-rate mortgages fell one basis point during the month but are 0.75 percentage points higher than March 2023, in line with ECB rate hikes. Overall the volume of so-called pure new mortgages, which excludes renegotiations and switching, fell 14 per cent year on year to €630 million.

While mortgage rates may start to fall, rates will still be much higher than the level some borrowers have been paying on fixed-rate mortgages in recent years, Mr Cassidy warned.

[ Bank of England holds rates at 5.25% but signals summer cut ]

“Regardless of how quickly or by how much rates fall this year, the tens of thousands of mortgage holders on fixed rates which are due to come to an end over the next few months still need to be preparing for potentially higher repayments,” he said.

The weighted average rate on new consumer loans increased 13 basis points to 7.65 per cent compared to a month earlier, the Central Bank of Ireland said.

Peter Flanagan

Peter Flanagan

Peter Flanagan is an Assistant Business Editor at The Irish Times

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