Ireland has risen to the top of the interest rates league table in Europe, that we pay on our mortgages. The average first-time buyer pays about €200 more per month than their eurozone counterparts on a. mortgage of a similar size. Though it all looks like it’s about to change, and the change could come sooner than we had anticipated.
Ireland’s mortgage on a drawdown
2021 came with the highest mortgage drawdowns since 2009, coming to the value of €10.5 billion. Which is up by 9.4% compared to the year before. Mortgage values saw a similar drop, but it isn’t expected to last through 2022.
The impact of rental costs
According to Property Industry Ireland (PII), we should be looking to renew the current measures for purchasing a home. There is a decline in home ownership within the younger generation because of outdated terms. The increase in rental costs affects people’s ability to own a home and save for a pension at the same time, which has long-term implications for Irish society, pension, and fiscal policy. The terms were amended 7years ago, to prevent another property boom. However, it stopped people with good incomes from owning a home. The loan-to-income ratio was the size of a mortgage. Up to 3.5 times the income of the household borrowing the money. Director of PII, David Duffy says, “They are an important pillar to managing the systemic and cyclical risk within the sector.”
Ireland versus Europe mortgage
Daragh Cassidy, head of communications at Bonkers website – said that the fall in mortgage rates is welcomed but the overall downward trend is very slow. The December Figures from Banking and Payments Federation Ireland showed that first-time buyers’ mortgage in Ireland is around €262,000. Telling us that the borrower is paying an additional €180 extra a month, or over €2,100 a year for 30 years – compared to their European neighbors.
Today’s Central Bank December figures show that the average interest rate on consumer loans was 7.49% – which was higher than the equivalent euro rate of 5.06%. Despite having the highest rates in Europe, Irish mortgage rates continue to drop and are now at record lows. As a safeguard against potential loan losses, the Irish banks must hold around three times the capital compared to European banks. That is one of the main reasons why mortgage rates remain so high.
Now is the time to fix the rate
According to recent figures from the Central Bank, they accounted for 84% of arrangements in December, including new mortgages and people who are switching providers. Reasoning that the LTV (loan to value) of 90% when purchasing a house in 2017, the LTV dropped to 61% and includes payments already made along with the increased price of the house. This drop can knock up the price to 0.55% off the interest rate. The lower the LTV, the lower the rate. Another option to consider is a new intervention in the market. Avant Money and Finance Ireland introducing fixed rate products of up to 30 years duration.
Trevor Grant warns that one may incur a penalty if you break the fixed rate agreement early. Some lenders allow you to carry your rate and mortgage balance to a new property for the future, but it means that to avoid any penalty, you must stay with that lender.
Mortgage lending in Ireland is risky because the banks have difficulty enforcing security if a loan goes into arrears. After almost a decade of low rates and cheap money, the financial backdrop for households looks to be changing – whether the change will be temporary or longer-lasting is the mystery.
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