Low-cost lender Avant Money is raising mortgage rates as the end of ECB easy money looms

The cheapest mortgage lender on the market is raising interest rates in a strong signal borrowers are facing higher costs, the Irish Independent has learned.

Vant Money, which shook the market here by introducing sub-2% mortgages in late 2020, is raising some fixed rates.

The move comes ahead of an expected rate hike by the European Central Bank (ECB) back in July, with a total of three hikes now likely by the end of this year.

The risk of a string of mortgage rate hikes has prompted borrowers to brace for higher costs for service trackers and adjustable-rate home loans.

Avant Money, the Leitrim-based lender owned by Spain’s Bankinter, is raising its five-, seven- and 10-year fixed rates for new borrowers by 0.2 to 0.3 percentage points.

The move will increase the popular seven-year fixed rate from 2.05 percent to 2.15 percent for a borrower with an 80 percent loan score.

According to Martina Hennessy from broker Doddl.ie, the new tariff will be 37 euros more expensive than the previous one per month or 444 euros per year. This applies to a mortgage of €250,000.

Avant Money’s three- and four-year fixed rates remain unchanged, with interest rates starting at 1.95 percent, the lowest on the market.

And the lender is cutting interest rates on its 25- and 30-year mortgages.

Brokers have been told by Avant Money that they see “significant upward pressure on funding costs.” This meant the option to fix longer could be attractive to borrowers, it said.

Brian Land, head of mortgages at Avant Money, said there is upward pressure on interest rates but the lender will continue to offer interest rates starting at 1.95 percent.

Meanwhile, there could be three rate hikes in Europe this year and more next year, economists warn.

This will affect about 450,000 homeowners who still use a combination of variable and tracker rates.

Many homeowners have opted for fixed rates, but a series of rate hikes from the ECB will hit them when they reach the end of their fixed rates, making new fixed rates more expensive.

A 0.25 percentage point increase in the ECB interest rate could add €380 per year to the cost of a typical €250,000 adjustable rate mortgage.

Three rate hikes could cost a typical household with an adjustable rate an additional $1,000 per year in higher repayments.

Experts warned borrowers that there could be a 0.25 percentage point hike in July, followed by two more 0.25 percentage point hikes before the end of the year, adding further pressure on homeowners.

The ECB refinancing rate, which trackers benefit from, could rise six to eight times by the end of 2023. That would raise the interest rate to 1.5 percent from the current 0 percent, according to Conall MacCoille, economist at Davy Stockbrokers.

According to Austin Hughes of KBC Bank Ireland, rates could rise in July, September and December.

“Some ECB officials have signaled that they would like to move the deposit rate into positive territory this year. That means two to three interest rate hikes by the ECB – the ones affecting tracker and floating rates – this year.

“This will mean higher borrowing costs for a significant number of people.”

An ECB rate hike will make variable and tracker mortgages more expensive. It will also mean more expensive new fixed rates.

About 60 percent of homeowners use a combination of variable and tracker rates, the central bank says.

About 200,000 homeowners have standard variable interest rates and will pay more with the installments. Around 250,000 are on trackers that rise or fall as the ECB rate changes.

The ECB politicians are under pressure to act due to the surge in inflation in the euro zone.