Chapter 1: What are the current trends in mortgage fixed rates?
Now, there are fears that interest rate hikes are on the way, and as a result, mortgage holders on fixed rates are attempting to transfer to another fixed rate scheme to shield themselves from the anticipated rises. For more on this, I'm joined by Charlie Weston, personal finance editor with the Irish Independent. Morning, Charlie. Good morning, David. OK, first the good news.
Interest rates are low, so mortgage repayments are low. That's the good news. The bad news is, the expectation is, they're only going in one direction.
That's absolutely right, David. Yeah, I mean, the current rates are at about three-year low. You can get an interest rate as low as 3%. Now, that would have to be a green mortgage, so you'd need to have a building energy rating of B3 or better.
Also, if you have good loan-to-value, if you have a lot of equity built up in the home, if you've paid down a fair bit of the mortgage, you could probably get a very lowish rate as well. But the range of rates is huge as well, from 3% to 6.15%. Yeah, I mean, you know, that's an interesting one.
A lot of people would have taken out a mortgage with Finance Ireland, a non-bank lender, because they were offering 2% rates at one stage, 2% mortgage rates, you know, really, really low. But if you're with Finance Ireland and you're due to come off a fixed rate, you will roll to a rate of 6.15, so an incredible increase.
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Chapter 2: How can homeowners protect themselves from rising interest rates?
So this is why there's a bit of a rush on at the moment for people who are, the 40,000 people who are coming off fixed rates this year, plus those who are due to come off later in the year or even next year, they're acting now to try and see if they can't lock into a new fixed rate and see if there's a penalty or not. They want to protect themselves against a payment shock because, as we know,
You know, households are being hit with higher food prices, energy costs, health insurance, etc. So, you know, it's a smart move by people to kind of lock in if they can at a decent rate at the moment.
Because with the situation in the Gulf and inflation and all the rest of it, I think the expectation is that central banks will have to increase interest rates, certainly in the medium term.
That's right. I mean, you know, the European Central Bank, its next monetary policy meeting where they decide on interest rates, it's June the 11th. It's a two-day meeting, but June the 11th they'll make an announcement. The odds are they'll probably increase. One, that the governing council members
A man called Peter Casimir, he's a Slovak central banker, he recently said policy tightening, as he called it, in June is all but inevitable. So in other words, a rate rise in June. Now, Christine Lagarde, the president of the European Central Bank, has been much more circumspect and guarded.
But even if there is a deal of some kind between Iran and the Americans, there's still going to be a lot of after effects and likely to be risks of inflation in terms of fertilizer, food, oil, all of that. So the European Central Bank would be keen to act. And as we saw the last time in 2022-24, there were nine interest rate rises from the European Central Bank.
And they tend to go up in stages of a quarter of a percentage point, I think. So, I mean, what does that mean for your average mortgage?
Yeah, I mean, you know, somebody buying a house at the moment, the average drawdown amount, David, is ā¬360,000. It's a huge amount of money. And that's up ā¬80,000 in the last three years. ā¬360,000. If there's a quarter percent increase in the rate that you have to pay, we're talking here a 30-year mortgage, You're typically talking about 100 euros extra a month, 100 extra a month.
That's 1,200 over a year. A hell of a hit. So look, if you're on a fixed rate, even if you've got a year to go in it, maybe contact your lender. Speak to them. Get on to your broker if you use the broker. See if it can tie into a new fixed rate at the moment when rates are still relatively low. Is there a penalty, though, for breaking a fixed rate mortgage?
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Chapter 3: What factors influence the interest rates available to borrowers?
So if you have 15, 20 years left on the mortgage, you could fix for life, for example, a 3.4%. If you've got a loan to value of 80% or better,
I suppose in the long run, we won't know until after the 30 years is up, you may or may not save money, but at least you have certainty.
You have certainty and you can just forget about it. I mean, you don't look back in a decision like that. It's like selling a share. You don't kind of keep looking at where it's gone. I'm clear here, you know, for 30 years, we know exactly what the payments are every month. There's no change. And you can make overpayments of 10% a year.
So if you came into a few, Bob, you could be paying down a bit of it. So, you know, there are options and, you know, people need to examine it at the moment because we're into a changed environment. It is, some experts think rates, European Central Bank rates could go up twice, three times this year. And that will translate into higher mortgage costs, higher fixed rate costs.
OK. Text in here, Charlie. If the loan to value is less than 50%, what kind of rate am I looking at? I'm on a fixed rate until May 2027, but I take it I can't switch now to extend my fixed period. But from what you're saying, Charlie, they may.
They may well be able to switch.
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Chapter 4: What should borrowers consider when switching mortgage rates?
I mean, a lot of people are switching at the moment. And the main motivation is to save money rather than to release equity, which used to be last year, according to the... Irish Independent Doddle Mortgage Switching Index, which Martina Hennessy puts together. If you're in the lucky position of a 50% loan to value, as your texter is, David, they've got options.
I mean, banks want to loan to you because you're a low risk. You're a very low risk. So you could probably do really well. You could get one of the lowest rates in the market, the 3%. You know, that's the kind of rate you're looking at for somebody with a 50% loan to value because they've paid off half of the value of the home loan. in terms of the mortgage. So they're in a great position.
And as you say, in the Indo today, Charlie, there are a lot of people looking at this now.
There are. There's a bit of a scramble going on. And, you know, I suppose as well, the smart people are getting in now. And then I'm hearing today that on the back of this article, there is a lot more people looking at their options and contacting brokers. So people are smart enough to know, you know, that interest rates are likely to rise over the next year or the end of this year.
So they're acting now to try and kind of protect themselves against the payment shock, I suppose, David.
OK, Charlie Weston, personal finance editor with The Irish Independent. Thank you so much for joining us this morning.
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