Irish mortgage rates increase in January after ECB hikes
Mortgage rates went up in January reflecting some of the effect of successive interest rate rises from the European Central Bank.
New data from the Central Bank also shows an average gap between the variable rates charged by the main banks and non-bank lenders of just over 1%.
The average interest rate on new mortgages rose by 0.24% in January to 2.93% compared to the previous month, according to figures from the Central Bank.
This leaves Irish rates at their highest level since October 2019.
The volume of new mortgage loans fell in January by 40% compared to December, but this was still 42% higher than January last year.
Fixed rate mortgages rose by 0.21% in January to an average 2.82% while variable rates rose by 0.29% to 4.14% on average.
This is an increase of 0.6% for variable rates and 0.23% for fixed rate mortgages compared to January last year.
Ireland continued to offer the third cheapest mortgage rates in the euro area in January as lenders here have been slower to respond to increases in ECB rates compared to lenders in other countries.
However, deposit rates remained low for savers.
Rates on new household deposits with “agreed maturity” – which means a fixed period for money to be kept on deposit – rose to 0.71% in January compared to an average euro area rate of 1.64%.
Rates on new consumer loans fell by 0.39% to 7.4% in January. The volume of new consumer loans rose by 20% on an annual basis.
This month’s release from the Central Bank contained new information on the difference in mortgage rates charged by banks and “non-banks”.
Non-banks include lenders that do not have banking licenses and credit-servicing firms which administer loans bought from the main banks by investment funds.
The figures show that non-bank lenders have 115,259 mortgage accounts. These account for approximately 15% of mortgage accounts and 20% of outstanding mortgage loans in value terms. Non-banks account for 36% of variable rate mortgages in value terms.
The non-bank mortgages comprise 38% on variable rates, 33% on trackers and 29% on fixed rates.
Average variable rates in the non-banks were 4.57% compared to an average 3.5% in the main banks.
Rates on trackers in the non-banks were 3.14% compared to 3.23% in the banks. Fixed rates were 2.23% compared to 2.69% in the banks.
Many non-banks do not offer new loans. This means as fixed rates increase, this will not be reflected as much in their average fixed rates.
The data is based on a sample of loans and compiled as a weighted average for the end of December 2022.
The Central Bank says it is working on how rates are distributed among different mortgage categories and will update this information “in due course”.
Commenting on today’s figures, Daragh Cassidy, Head of Communications at bonkers.ie, said the recent ECB rate increases are now beginning to show up in the Central Bank monthly figures.
“Initially the banks were slow to pass on the ECB rate hikes but this is now starting to change. And the average rate will shoot much higher over the next few months,” Mr Cassidy said.
He said the ECB is almost guaranteed to hike rates by another 0.50 percentage points next week and by at least another 0.25 percentage points before the end of this summer.
“This will take the main lending rate to 3.75%, though it looks increasingly likely that it will go even higher. This means yet more rate increases from all the lenders are guaranteed over the coming months,” Daragh Cassidy said.
He said that borrowing €300,000 over 30 years at 5% will cost €1,610 a month or around €500 more each month compared to someone borrowing the same amount at 1.9%. Borrowing €300,000 at 6% will cost almost €1,800 a month or around €700 extra each month.
But Mr Cassidy also said that increaseing rates will also mean slightly better rates for savers.
“Though with inflation still near record levels, and DIRT at 33%, returns won’t be anywhere near enough to match inflation. And until now, the main banks have been slow to pass on better rates to savers,” he noted.