The cheapest mortgage lender in the market will raise interest rates in a strong signal that borrowers are facing higher costs, the Irish Independent has learned.
vant Money, which shook up the market here by launching mortgages for less than 2pc at the end of 2020, is increasing some fixing rates.
The move comes ahead of an expected rate hike by the European Central Bank (ECB) as early as July, with a total of three hikes now likely by the end of this year.
The risk of a succession of mortgage rate hikes has prompted borrowers to prepare for higher costs for follow-up services and variable-rate home loans.
Ahead of Money, the Leitrim-based lender owned by Spain’s Bankinter, is raising its five-, seven- and 10-year fixed rates for new borrowers by 0.2 to 0.3 percentage points.
The move will see the popular seven-year fixed rate drop from 2.05% to 2.15% for a borrower with an 80% loan to value.
This means that the new tariff will be €37 more expensive per month, or €444 per year, than the existing one, according to Martina Hennessy of broker Doddl.ie. It is a mortgage of €250,000.
Avant Money’s three- and four-year fixed rates are unchanged, with rates starting at 1.95%, the lowest in the market.
And the lender is cutting rates on its 25- and 30-year mortgages.
Brokers have been told by Avant Money that it is seeing “considerable upward pressure on funding costs”. That means the option to fix longer may be attractive to borrowers, he said.
Avant Money head of mortgages Brian Lande said there was upward pressure on interest rates but the lender would continue to offer rates starting at 1.95%.
Meanwhile, there could be three interest rate hikes in Europe this year and a number next year, economists have warned.
This will impact some 450,000 landlords who still benefit from a combination of variable rates and tracking rates.
Many homeowners have opted for fixed rates, but a series of ECB rate hikes will hit them when they come to the end of their fixed rates and will make the new fixed rates more expensive.
A 0.25 percentage point hike in the ECB rate could add €380 per year to the cost of a typical variable rate mortgage of €250,000.
Three rate hikes could end up costing a typical variable-rate household an extra $1,000 a year in higher repayments.
Experts have warned borrowers there could be a 0.25 percentage point hike in July, followed by two more 0.25 percentage point hikes before the end of the year, which would put further pressure on the owners.
The ECB’s refinancing rate, whose trackers are priced, could rise six to eight times by the end of 2023. This would see this rate rise from 0pc currently to 1.5pc, according to Davy’s economist Stockbrokers Conall MacCoille.
Rates could rise in July, September and December, according to KBC Bank Ireland’s Austin Hughes.
“A number of ECB officials have signaled that they would like to push the deposit rate into positive territory this year. variable rates – this year.
“It will mean higher borrowing costs for a significant number of people.”
An ECB rate hike will make variable and tracker mortgages more expensive. This will also result in new, more expensive fixed rates.
Some 60% of homeowners benefit from a combination of variable rates and trailing rates, according to the Central Bank.
About 200,000 homeowners benefit from standard variable rates and are willing to pay more with the rates. About 250,000 are on trackers, which rise or fall when the ECB rate changes.
ECB policymakers are under pressure to act due to a spike in eurozone inflation.