Today the ECB increased their main refinancing rate from 2.4% to 2.65%, the second rate increase in three months.
With inflation in the Euro area at 3.3% (3.7% in Ireland), far ahead of the ECB’s target level of 2% and with two more European Monetary Policy Meetings before year end, what does this mean for mortgage holders –
Lets look at 3 different types of rate and how they are impacted –
Tracker Mortgages:
Approximately 120,000 tracker mortgage holders in Ireland will be impacted by today’s rate increase, the second in three month.
Tracker mortgages were available in Ireland up until 2008 when the product was withdrawn.
For a tracker mortgage holder with a €150,000 balance and 10 year term with a 1.1% margin to the ECB base rate this second increase will mean that their repayments will increase in total as a result of the two increases by approximately €430 per annum in the last 12 months.
Variable rate mortgages:
Two rate increases this year has served as a reminder that the rate environment can be volatile.
The lowest variable rate on the market currently is 3.75% and with fixed rates starting from 3% we are seeing homeowners take the view that there is little benefit in remaining exposed if they can secure a competitive rate now.
Variable rates are based on a lenders own costs and general market forces including funding costs, competition etc. As fundings costs rise, lenders may start to increase variable rates.
There are thousands of mortgage holders who have rolled out of fixed rates and who have not checked their mortgage rate and are sitting on high variable rates. Now is the time to review your rate and see if you could save by locking in a fixed rate.
Fixed rate mortgages:
Those on fixed rates will not see an impact on their repayments but those nearing the end of a fixed rate will be very conscious of rate movements over the coming months.
While we have seen some lenders increase their rates this year, the majority have not and the question is whether upward pressure on funding costs will mean that they do.
Borrowers are increasingly looking to lock in certainty rather than gamble on where rates go to next.
Latest figures show an uplift of almost 72% in mortgage switching approvals in July as mortgage holders seek out competitive rates.
Next European Monetary policy meetings – October and December
The impact of the war in Iran have bot dissipated.
Inflation concerns, higher energy and electricity costs have forced the ECB to lift its inflation forecasts, prompting policymakers to signal that further tightening may be needed.
This second rate increase is a reminder that the rate market can be volatile.
Now is the time to take control of what is for most people their largest financial commitment. If you don’t know where to start, get free, impartial advice from our team at doddl.
Need advice – just ask – start here!
