Archives July 2023

Borrowers have been warned to brace themselves for a ninth rise in European Central Bank (ECB) rates.

The latest imminent hike means 400,000 mortgage borrowers are exposed to a “ticking time bomb” of higher rates over the next two years.

These are people on tracker rates, variables and those coming to the end of fixed rates.

This year alone, more than 60,000 homeowners are due to come to the end of a fixed rate, which will put a massive squeeze on their finances.

The ECB is expected to announce another 0.25 percentage points rise in its key rates next week.

The move will mean some people coming off a fixed rate could end up paying an extra €3,500 over a year to lock in to a new one after a succession of increases in the cost of new fixed rates in the last year.

Analysts are expecting another 0.25 points rise in September, at which point they expect ECB rates to peak, according to a survey of economists across Europe carried out by the news wire service Bloomberg.

Mortgage broker Michael Dowling, of Dowling Financial in Dublin, said around 60,000 mortgage holders would be coming to the end of fixed rates this year.

He said fixed rates had risen by between two percentage points and 2.5 points since they last fixed.

This means a family on a €300,000 mortgage will typically be coming off a 2.75pc fixed rate.

Now they will be faced with fixed rates of 4.5pc.

These consumers will face almost €300 a month in higher repayments, which works out at more than €3,500 over a year, he said.

About 120,000 mortgage accounts are on tracker rates, according to Mark Coan of money guide MoneySherpa.ie. These borrowers will be automatically hit with higher lending rates.

Around 164,000 are on variable rates, with many of these unable to opt for a fixed rate because their mortgage was sold to a vulture fund, and past arrears issues have turned them into mortgage prisoners.

Mr Coan said that, according to the latest Central Bank financial stability note published in April, 64,093 residential fixed rates would rise this year, and 71,214 next year.

This means 135,307 in total potentially rolling on to variable rates in the next two years.

The same report puts the combined number of variable mortgages, including trackers, at 284,858.

That means 420,165 mortgages are exposed to interest rate increases over the next two years, when those on variable, tracker and those coming off a fixed rate are added together.

“There is a time bomb ticking under the Irish mortgage market with 420,000 mortgages due to be hit with rates north of 4.5pc,” Mr Coan said.

“By the time households cotton on to the hikes, it’s likely the current low fixed-rate options will have been withdrawn from the market.”

He said most people did not realise they could switch to a longer-term fixed rate now without a breakage fee.

“If you are on a short-term fixed rate, variable rate or tracker rate, you should talk to a broker as soon as possible to get market-based advice on your switching options.”

Start Mortgages recently wrote to thousands of its customers to tell them their mortgage rates would rise by 0.75 of a percentage point this month.

Last month, 9,500 mortgage prisoners, whose loans are serviced by Pepper Finance, were told they are due to get letters this month telling them rates are rising by up to one percentage point.

Credit union mortgage rates are the only ones that have not gone up in the last year.

This is because credit union lending rates are not dictated to by the ECB rate. Instead, loans from the credit unions are funded from member savings.

The key ECB refinancing rate is 4pc, but is expected to go to 4.25pc when the ECB governing council meets on Thursday week.

Daragh Cassidy, of price comparison and brokerage Bonkers.ie, said the ECB was likely to hike its main lending rate, off which trackers and variable rates are priced, to 4.25pc when it meets next week.

He said there was a good chance that the key ECB refinancing rate could hit 4.50pc in September.

“This means the average tracker ­customer could soon be paying a rate of around 5.6pc or 5.7pc while the best rate available to prospective first-time buyers will likely be over 5pc by the end of the year,” he said.

Source: Charlie Weston, Irish Independent 18/07/2023

Easing of mortgage borrowing rules for first-time buyers and ongoing Government supports are underpinning prices, says report

Mon Jul 10 2023 – 05:00

Asking prices for Irish homes picked up in the three months to the end of June following three quarter-on-quarter declines in a row, as the market showed signs of stabilising even as interest rates continued to climb, according to MyHome.ie.

The average asking price for a home increased by 4.3 per cent in the second quarter compared with the first three months of 2023, and are now 2.2 per cent higher than the same time last year, at €325,000, according to MyHome, which is part of The Irish Times group.

That compared to a 0.4 per cent quarter-on-quarter drop in the first three months of the year.

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Dublin prices rose 3.3 per cent in the period to the end of June and at an annual rate of 0.6 per cent, according to the latest data. Homes outside the capital increased by 4.6 per cent on the quarter and by 3.5 per cent year-on-year.

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The report also points to more realistic pricing by sellers as homes are now being sold for 1.4 per cent over the asking price, on average, down from between 5 and 6 per cent in the middle of last year.

MyHome.ie said prices are being underpinned by an easing of Central Bank borrowing rules for first-time buyers at the start of the year and by ongoing Government supports for people looking to get a foot on the property ladder, as well as a shortage of properties on the market.

This has more than offset the impact of the European Central Bank (ECB) continuing to raise official rates this year. Its main lending rate moved from zero to 2.5 per cent between last July and December, and has since risen to 4 per cent.

“The stabilisation of the market is to be welcomed,” said Joanne Geary, managing director of MyHome.ie. “The Government’s demand-side initiatives and looser Central Bank lending rules appear to be negating the effects of rising interest rates, but we also need to see available properties on MyHome.ie approach the pre-pandemic figure of 20,000 to make a meaningful difference.”

There are currently just 14,000 properties listed for sale on the company’s website.

Conall Mac Coille, chief economist at Davy and author of MyHome.ie’s latest quarterly report, said an overall decline in Irish house prices this year still “cannot be ruled out, given the prospect of further ECB rate hikes”. However, he said an annual drop in values now appears less likely.

“We have left our forecast for asking price inflation unchanged at 1.5 per cent through 2023 but have revised up our forecast for housing completions to 29,500,” he said. Davy previously estimated that completions would fall to 27,500 units this year from almost 30,000 in 2022.

Separately, a new report suggests activity in the Irish construction sector expanded in June for the first time since last September.

The BNB Paribas Real Estate Ireland construction purchasing managers’ index rose to 50.4 in June from 49.4 in May, the company said. A reading above 50 indicates that activity is growing.

John McCartney, head of research at BNP Paribas Real Estate Ireland, said the increase “has been coming for a while, with building firms consistently reporting increased new orders and staffing levels since the start of this year”.

Still, the subsector reading for housing activity was only 48.4, marking a ninth successive month of decline. Mr McCartney said the viability of apartment building amid higher constriction cost and interest rates in recent times “remains challenging” in particular. Still, he expected new home completions to reach 30,000 this year.

Source: The Irish Times 10/07/23