It is always really difficult to predict interest rate movements, we have seen how the unexpected (Covid and Wars) can hugely impact interest rates but after two years of rate increases through 2022 and 2023, 2024 brought some welcome rate reductions. So what’s next for interest rates?
What’s happening with the ECB rate and will it affect my mortgage rate?
Tracker Mortgage Rates – what to expect in 2025
We started the year with an ECB refinancing rate of 4.5% and are now at 3.15pc following four 0.25pc rate cut plus the boost of 0.35pc cut arising from a technical adjustment made in September.
ECB rate cuts are as a result of inflation dropping closer to the ECB’s target level of 2%.
The drop of 1.35pc in 2024 means, for the average tracker mortgage holder with a margin of 1.1pc to ECB, a drop in repayments of €74 per month for every €100,000 owed over a 20 year term. For a mortgage holder with €250,000 remaining on their mortgage this is a significant figure of €2,230 per annum.
With three monetary policy meetings to come from the ECB in Q1 next year it is anticipated that the ECB will continue their rate reduction path into early 2025.
Any decrease in the ECB main refinancing rate leads to a direct decrease in a tracker mortgage holders interest rate and repayments.
What if I don’t have a tracker rate?
For those who do not have a tracker mortgage it is important to differentiate that banks fund on money markets, via deposits or a combination of both.
The interbank lending rate is the Euribor rate (and not the ECB rate) and this is what most lenders cost of funds is based on.
Those expecting interest rates to continue to fall in line with ECB cuts may not see this come to pass.
The ECB increased rates by 4.5% over 2022 and 2023, the banks in Ireland increased rates by approx. 1.5%.
Recent rate cuts have already factored in expected downward movement on funding costs next year.
Also worth noting that rates have dropped quite considerably in the second half of 2024 with cuts of up to 1% from some of the pillar banks.
Will mortgage interest rates fall in 2025?
There is a huge difference on rates across the market with the lowest rates starting from 3% but highest ranging to 6.4%.
Rates at the upper end of the scale should certainly drop as funding costs for these lenders have fallen.
Lenders offering rates at the lower end of the market may tweak their rates to remain competitive but it is unlikely that there will be a mass drop in rates, even if the ECB pursues its rate cutting path into 2025.
As a rule of thumb for budgeting purposes currently I would say that for every €100,000 you want to borrow over a 30 year term you should budget €450 per month. An example would be mortgage €300,000, repayment €1,350 per month. Rate is always set at time of draw down.
Green mortgage rates are the lowest rates on the market and apply where you have a building energy rating (BER) of A or B. There are also lower rates available for those with lower loan to values with the main threshold being at 80% loan to value.
Rates offered currently are variable and fixed from 1 year to 30 years. Mortgages are complex, understanding what rate might be best for you is not easy, we are here to help.
The spread of rates available across all twelve lenders in the market currently means its so important to do your research or seek market based advice from doddl when assessing mortgage options. We can help you understand what mortgage option may be best for you.
Need advice, just ask!
