Forecast for some mortgage holders remains cloudy
As we move further into 2024 and beyond, homeowners across Ireland find themselves bombarded with news about the impact of inflation and rising house prices. Inflation looks like it is coming under control and world central banks, thankfully, look set to start reducing interest rates.
For households with mortgages, particularly tracker mortgage holders and fixed-rate customers nearing the end of their contracts, the outlook for mortgage interest rates in the coming years carries huge implications.
First, it is important to take stock of what has happened to mortgage interest rates in recent years. The war in Ukraine, rising energy costs, and soaring inflation has led to central banks going on an interest rate rampage since 2022.
The European Central Bank (ECB) has increased the main refinancing rate from near zero to 4.5% since 2022.
Tracker mortgage holders have seen their mortgage repayments dramatically increase by thousands per year. Also, those coming to the end of fixed mortgage rates are now starting to see big increases in mortgage repayments. This has put a huge strain on the finances of Irish households.
Thankfully, good news is on the horizon. The ECB looks set to decrease their main refinancing rate before August this year with further decreases set to follow into 2025.
Tracker mortgage holders will see their monthly mortgage repayments fall in the month after any cuts. Things look a bit more uncertain and complicated for those coming off fixed mortgage rates.
Tracker mortgage customers will see a bonus 0.35% reduction in their mortgage interest rates, on top of the other planned ECB rate decreases.
The reason for this is an upcoming change in policy from the ECB. Currently, tracker mortgage rates are pegged to the main ECB refinancing rate — which is 4.5%. The overnight deposit rate is presently 4%, and the ECB has decided that this is a more appropriate rate for trackers to follow.
This decision means tracker mortgage customers will benefit from a bonus cut of 0.35% in September.
Forecasts say the ECB will decrease rates by up to 1% before the end of 2024. Add in the bonus 0.35% cut and this could see the average tracker mortgage rate realistically fall from 5.6% to 4.25% by the end of 2024.
Fixed and variable mortgage holders do not have the guarantee that tracker mortgage customers benefit from and so their future is cloudier.
It was possible to get a mortgage rate under 2% in early 2022, but today you are hard pressed to get a mortgage rate under 4%.
That said, Irish banks were slow to start increasing mortgage rates and it looks likely they will be just as slow to start decreasing them. Do not bet on any dramatic reduction in fixed and variable mortgage rates before the end of 2024.
Mortgages coming off fixed rates soon will, in the main, see a jump in mortgage repayments. Someone with a mortgage of 300,000 and a fixed rate ending soon might see an increase in mortgage repayments of up to €250 per month or €3,000 per year or more.
Shopping around for a new, albeit higher, fixed mortgage rate is the best option for most. On the other hand, you may decide to take your chances on your banks variable mortgage rate.
Meanwhile, the ECB should be able to make a decision on interest rates in June, according to governor of the Central Bank of Ireland Gabriel Makhlouf.
- Stephen Hamilton is broker and managing director at MortgageLine.
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