Mortgage rates rise as Lagarde points to ECB hike in July


Mortgage interest rates have started to rise before European lending rates are expected to rise in the coming months.

The new figures on interest rates come as European Central Bank President Christine Lagarde hinted today that the Frankfurt-based institution could raise interest rates from historic lows as early as July if euro-zone inflation spikes.

Mortgages in that country remain among the most expensive in the euro zone, March figures from the Central Bank of Ireland show.

Irish mortgage rates remain the second highest in the eurozone, meaning borrowers here are paying €2,100 more a year than the currency bloc average.

Figures for March show that Irish borrowers, which include first-time buyers and those moving house, paid an average interest rate of 2.78 per cent for the month.

That is 0.2 percentage points more than in the previous month.

And the average exchange rate in the euro zone has risen enormously. It rose 0.9 percentage points to 1.46 percent in March, the highest level in over two and a half years.

Experts said the medium-term prospects are that interest rates will rise.

Ireland’s interest rate of 2.78 percent on new mortgages in Ireland is the second highest in the 19-country eurozone after Greece.

Last week, the cheapest lender on the market, Avant Money, announced that it was raising its fixed rates. It comes after ICS Mortgages hiked its rates.

However, Permanent TSB, Bank of Ireland and EBS have recently reduced some of their interest rates.

The moves to change interest rates come ahead of an expected rate hike by the European Central Bank (ECB) this summer, with a total of three hikes now possible by the end of this year.

Three ECB rate hikes could add €1,000 to the cost of servicing a typical variable or tracker mortgage over a year. In addition, new fixed tariffs would be more expensive.

Daragh Cassidy of price comparison site said inflation in the euro zone is at 7.5 percent, making rate hikes a certainty.

“The central banks of the US, UK, Australia and New Zealand have all recently hiked interest rates to curb rapidly rising prices and it is only a matter of time before the ECB is forced to follow suit. But when and by how much is the big question.”

However, he said that Irish mortgage rates are so far off the ECB’s base rate that we could see a small hike in the ECB’s rate being absorbed by lenders rather than being passed on to consumers with floating rates.

“It’s going to depend somewhat on the competitive pressures that banks feel they are under,” Cassidy said.

However, this is not the case for trackers, which rise and fall as the ECB rate moves.

He said the rise in the average Irish mortgage rate could reflect a large number of homeowners committing to pricier longer-term fixed rates ahead of an ECB move.

“Rapidly rising real estate prices are also likely to have pushed more first-time buyers into a higher loan-to-value ratio.”

The average first-time buyer mortgage in Ireland is around €270,000.

This means that someone who borrows this amount over 30 years pays around 176 euros more per month or over 2,100 euros per year compared to our European neighbors.

Banks in that country defend higher mortgage rates on the grounds that mortgage lending in Ireland is considered risky, partly because banks have difficulty enforcing collateral when a loan defaults.

This means that Irish banks have to hold around three times as much capital to protect themselves against potential credit losses compared to banks in the rest of Europe. Mortgage rates rise as Lagarde points to ECB hike in July

Fry Electronics Team

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