Mortgage Time Bomb Ireland: Fixed-rate borrowers warned as massive ECB rate hike looms

Steps by the European Central Bank (ECB) to implement a jumbo interest rate hike this week have prompted warnings that some homeowners with fixed rates may need to break out of them.

Holders of floating-rate or fixed-rate bonds with maturities under two years must act now or be hit by huge increases in principal, the latest research says Irish Independent Mortgage Switching Index has found.

A family waiting until their current fixed rate expires in two years could end up paying $1,500 more per year to secure a new five-year plan.

People exiting historically low fixed-term contracts over the next few years can expect immediate rate hikes of more than 1 percent, according to mortgage expert and chief executive of, Martina Hennessy.

The ECB shocked mortgageholders last month by raising interest rates 0.5 percent higher than expected.

Runaway inflation means the ECB is likely to announce a second hike of 0.75 percent on Thursday. This automatically drives up the cost of the tracker plans.

The three main banks have not passed on last month’s rate hike to their adjustable rate customers, but are expected to do so.

And all new fixed rates are expected to rise.

Ms Hennessy said a family with a five-year fixed rate of 3 per cent two years ago needs to assess their options and consider whether it makes sense now to exit their fixed rate early and get back to fixing.

Since the lowest five-year fixed rate is currently 2.5 percent, the best five-year rate at the end of the specified period will likely be 3.5 percent.

You would end up paying an extra €130 per month to lock in for a new five-year plan. Over a year this would cost an additional €1,500 in repayments. This is based on a €250,000 mortgage with a term of 25 years and a loan to value of 80%.

Ms Hennessy said penalties for early exit from a fixed rate had fallen radically over the past nine months, with many lenders not imposing penalties.

Mortgage switching activity has surged, with approval volume growing 153 percent year-on-year and the number of mortgage switches now double what it was four years ago.

“There are two certainties – we are in for a period of sustained rate hikes and the pillar banks, which have some of the highest rates in the market, will be raising rates soon,” Ms Hennessy said.

“The vast majority of mortgage holders will not have felt any impact from the recent hikes as they have at AIB, Bank of Ireland or Permanent TSB who have not changed their interest rates.

“If you have a variable rate, unless you plan to pay it back in the short term, you need to act now and set your interest rate to avoid a looming rate hike.

“Even a phone call to your bank will save you 1 percent immediately and later several percentage points per year.”

The only people not going up immediately are those with medium-term fixed rates, Ms Hennessy said.

“For people who have one year left, next year is going to be a big concern as they come out of historically low interest rates and affordability could become an issue given the overall increase in the cost of living,” she said.

“Our advice would be don’t wait until next year – now is the time to reconsider your mortgage to lock in your next fixed rate rather than waiting for your rate to expire.” Mortgage Time Bomb Ireland: Fixed-rate borrowers warned as massive ECB rate hike looms

Fry Electronics Team

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