In hopes of a pause in lending rate hikes, the ECB has increased rates again this month due to concerns about persistent inflation. This decision aims to bring down the rate of inflation. With the key refinancing rate at 4.5%, those who track this rate will be affected.
According to Joey Sheahan, the head of credit at online broker MyMortgages.ie, higher interest rates have negatively impacted existing mortgage holders and potential homebuyers. Tracker mortgage holders have already seen their repayments increase annually by €5,532 since the ECB started raising rates in July of last year, based on a €220,000 mortgage with 15 years remaining. Furthermore, each 0.25 percentage point rise in mortgage rates adds approximately €156 to the annual repayments on each €100,000 borrowed over 25 years.
Moreover, higher interest rates have limited borrowing capacity for house-hunters. Banks now require higher demonstrated repayment capacity, which can be up to €600 monthly for a €300,000 mortgage, according to Sheahan. This means potential mortgage applicants must save significantly more each month.
Trackers customers will see an immediate increase of 0.25 percentage points in their mortgage rates. As stated by Daragh Cassidy of broker Bonkers.ie, those paying a margin of 1 percentage point will now be paying 5.50%. For borrowers with outstanding balances, these rate hikes translate to higher monthly repayments. For instance, a tracker customer with an outstanding balance of €200,000 over 10 to 15 years will experience significantly increased monthly repayments.
Variable-rate borrowers are also likely to face higher repayments in the near future. Furthermore, those on fixed rates who are approaching the end of their fixed-rate agreement need to anticipate higher repayments. The rates they have been paying are significantly lower than the rates they will get when they come to re-fix. Most fixed rates are now ranging between 3.75% and 5.50%, and these rates are projected to rise even further.
According to Mark Coan of money guide Moneysherpa.ie, rates are not expected to return to the near-zero levels experienced after the banking crisis. Forecasts indicate that rates will stay above 4% until 2024, and then level out at 3% to 4% in 2025. This suggests that rock bottom rates will likely not return, as seen from 2008 to 2022.
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