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Q&A: increase adds €14 to the monthly repayments on an €100,000 loan
Borrowers on standard variable rates, might be nervously watching what their lenders do in the weeks ahead although there is no change as of now.
Photograph: Getty Imagesby a quarter of a percentage point. That takes it to 2.5 per cent while its main lending rate, to whichtracker mortgage costs are linked, has gone up by the same margin. And that will see it climb to 2.65 per cent. The impact will depend on individual circumstances.
Those without a mortgage and homeowners with fixed-rate mortgages will see absolutely no change – although some might hope the rate hike will ultimately lead to a better return on their savings. Borrowers on standard variable rates, might be nervously watching what their lenders do in the weeks ahead although there is no change as of now.
People with tracker mortgages – and around 100,000 people still have those legacies from Celtic Tiger era – will feel the financial pain within weeks. In isolation it is not terrible. A 0.25 percentage point increase in lending rates will add around €14 to the monthly repayments on an €100,000 loan.
ECB rate hike will bring bad news for Irish mortgage holders A borrower with €200,000 outstanding on their mortgage, will have to pay close to €30 more each month starting with the October repayment. Spread out over the course of a year that amounts to an additional €360 and when the June rate hike is added to the mix in means the tracker holder with €200,000 outstanding will be worse off by just over €700 a year.
Obviously not but context is important here. For more than a decade the tracker cohort were paying low rates of interest compared to variable and fixed-rate mortgage holders. And while they have felt significant pain in recent years with rate hikes after Russia invaded Ukraine costing many over €3,000 a year, multiple rate cuts since 2023 eased the financial pain.
And, as Daragh Cassidy of price comparison and switching site bonkers.ie, notes “anyone on a tracker who is paying a margin of 1 per cent or less is still getting a fairly good deal. ”The big three Irish lenders didn’t respond to the last ECB rate hike, keeping both their variable and fixed rates unchanged.
“This has led Irish mortgage rates to fall below the euro zone average in recent weeks, which is rare for Ireland,” Cassidy says. “AIB, Bank of Ireland and PTSB are less exposed to changes in ECB rates because they fund a significant proportion of their lending through customer deposits. But I’m not as confident that they’ll absorb a second quarter point hike, especially for their fixed rates.
And they definitely won’t absorb a third hike, which is currently a small possibility before the end of the year. ”The rate of inflation across the EU is hovering around 3.3 per cent, well above the ECB’s 2 per cent target.
“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth,” the ECB said in a statement after its meeting in Berlin. Not everyone is convinced it will.
“The current inflationary pressures are the result of a supply-side shock rather than excessive consumer demand,” Cassidy says. “So you could question how effective higher interest rates will be in bringing inflation back under control. And this may limit the ECB’s appetite to hike rates much more. ”The ECB tends to play its cards close to its chest and it leaves all options on the table.
And it is doing that today but the smart money would suggest that there probably won’t be another rate hike this side of Christmas. There probably is and it is not just tracker holders who should be considering their next steps.
“Fixed term products are highly competitive right now, with rates starting from 3 per cent for terms ranging from 1 to 30 years,” says Martina Hennessy of online mortgage brokers doddl.ie. “For those who want to fix and forget and keep their monthly repayment the same for the whole mortgage term, rates start from 3.4 per cent. People have much more choice now around how much certainty they want and for how long.
” She says the message for borrowers “is not to be passive. You will only ever know if it makes sense to switch by doing your research or getting market based advice from a broker. If you can save then I would encourage people to act as there is no benefit to pay needless interest.
”Well you would imagine that if the ECB is increasing its interest rates, those increases will just as quickly be passed on to Irish savers who have in excess of €170 billion on deposit in right now. But evidence from times past suggests that might not be the case. Irish banks have historically been slow to pass on ECB rate increases to savers.with personal finance questions you would like to see us address.
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