More pain looms for mortgage holders as interest rate hikes set to continue

Mortgage holders will come under further financial strain this summer and throughout 2024 if Central Bank governor Gabriel Makhlouf’s suggestions on Wednesday of two imminent interest rate hikes become reality.

Some market-watchers now expect rates to remain elevated until 2025, with first-time buyers, holders of tracker mortgages and those coming off fixed rates to pay a very high price as a result.

The European Central Bank (ECB) will meet in Frankfurt next week and at the end of July, with rate hikes possible on both occasions, as indicated by Mr Makhlouf. This would see holders of tracker mortgages facing their ninth increase within just 12 months.

An ECB increase of 0.25 percentage points adds, on average, around €13 on to the monthly repayments for every €100,000 borrowed, so two rate increases of this size would see the annual cost of a €300,000 mortgage climb by over €900.

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When added to the seven ECB increases absorbed since last summer, this would mean tracker mortgage holders who were paying rates of between 0.5 and 1.5 per cent last year would be paying between 4.75 and 5.75 per cent by the end of August, leaving many of that cohort worse off by in excess of €5,000 annually.

And it’s not just tracker mortgage holders who are facing a hit. Mortgages worth up to €12 billion are set to come off low fixed rates over the next three years and into a much higher rate environment. First-time buyers and switchers, meanwhile, have seen lower-cost loans disappearing in recent months.

Mr Makhlouf said that, along with two further interest rate hikes, he expecte rates to remain elevated for longer than markets had anticipated, as headline inflation, driven by increased wage demands, remains strong.

“In my view what’s likely to happen next week is that the ECB is likely to move interest rates up again,” Mr Makhlouf told journalists at the publication of the regulator’s semi-annual Financial Stability Review. He said a further rate hike in July was also “probable” on the basis of current price data, noting “underlying price pressures remain strong”.

“Once we’ve reached what I would describe as the top of ladder of increasing interest rates, we’re likely to stay there for a while,” he added.

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Daragh Cassidy of mortgage price comparison and switching website Bonkers.ie said the average tracker customer would soon be paying a rate of close to 5.5 per cent, while the lowest mortgage rate on offer for first-time buyers would be at a similar level.

“Whatever the outlook, I think it could be 2025 until rates fall back. Markets seems to think rates may start falling as soon as early next year which I don’t think will happen. Inflation is still way too high,” Mr Cassidy said.

Managing director of online brokers Doddl.ie Martina Hennessey said the average tracker mortgage rate could soon be 5.65 per cent which would add a further €105 per month to the outlay of “already hard pressed tracker mortgage holders”.

And she warned that for non-tracker mortgage holders “the outlook for 2023 is for further rate increases. With funding costs continuing to rise, it is expected that the banks will pass on this cost to mortgage customers.”

She pointed to research from the Central Bank which, she said, highlighted that 40 per cent of mortgage holders would remain unaffected by rate increases until the end of 2023.

“With these mortgage holders set to experience a significant increase in repayments due to the current high interest rate environment, it is important that they act early to ensure they have to time to assess options and seek market-based advice. Even though rates have significantly changed in the past year there are still attractive options available in the market.”