There are approximately 720,000 residential mortgages in Ireland, over 560,000 are home loans. Approximately 180,000 are tracker mortgages the remainder are on fixed or variable rates. The ECB has decreased their rate, will this mean we should see a drop in other mortgage rates?
The ECB has cut rates, I do not have a tracker rate but should I expect my rate to fall also?
Homeowners who took their mortgage after 2008 or who do not have a tracker rate, the ECB rate drop does not automatically mean that their rate will decrease.
The main banks will note that even though the ECB increased rates by 4.75% they themselves did not increase at such a level and as such those waiting for a huge drop in rates may not see it materialise, even if the ECB drops.
In normal course of business banks variable rates (and also deposit rates) should broadly increase or decrease as the ECB base rate moves. So we should hopefully see some downward movement on variable rates (indeed ICS and Finance Ireland have reduced theirs following ECB drop).
However, for fixed rates, banks cost of funds is based in part on the Euro Interbank Offered Rate or EURIBOR .
While the EURIBOR rate follows the ECB’s policy rates, and so a reduction in the ECB rate should flow through to the EURIBOR rates, there are other factors which impact a lenders pricing.
A Key point to note – Markets had widely expected that the ECB rate would fall in June and as such had priced in this rate cut. This resulted in the Fixed Rate decreases we have seen over the last two months. As such the ECB cut has already been factored into fixed rates.
Will mortgage interest rates drop further?
It is always very difficult to predict rate movements (Covid, two Wars, impossible to tell, unexpected things that can impact rates). It could be expected that we will see further individual rate decreases and funding costs for the non bank lenders should decrease so we would hope to see downward movement from them.
Overall, most mortgage holders do not want to speculate when it comes to rates, they like certainty and this is why fixed rates are very popular.
From 2016 to 2022 we had a period where rates dropped to sub 2% due to low bank funding costs. It would take extraordinary economic circumstances for rates in the near future to drop back to these levels.
If you can secure a rate at 3.45% or up to 3.8% these should still be considered competitive rates give the ‘standard’ fixed rates from BOI and AIB Group (Haven) are all over 4.5% currently and non bank lenders are up to 6.4% for fixed rates.
What mortgage rate to select?
As always this is down to individual client circumstance but it is not expected that rates will increase in the short term and as such the shorter term fixed rates 4 years and under offer the opportunity for home buyers in particular to lock down repayments as they settle into their home while also keeping options open if they themselves feel rates could decrease in the short to medium term.
Rates are also stronger at sub 80% loan to value as can be seen from Avant Money’s pricing so a home buyer at 90% today would most likely be at 80% fairly quickly due to property price inflation and paying down the capital as such someone taking a 3 year fixed now should, you would expect, be at less than 80% bracket at the end of the fixed period. All assuming market continues as per current single digit growth.
Split rates also available (from all but Avant presently) for those who want to keep options a little more open, part fixed, part variable or part longer, part shorter term fixed.
It is so important to get advice – we work with all major lenders and offer lowest market rates at doddl. The range of rates runs from 3.45% to 6.4% for fixed rates so it is vitally important that you get the lowest rate you can achieve as interest adds no value to your mortgage.
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