This newspaper reported the strong likelihood that the European Central Bank (ECB) will raise interest rates by the fourth quarter of 2022 with further increases expected for 2023.
Expected increases by the end of 2023 are between 1% and 1.5%. In March 2016, six years ago, the ECB base rate fell to 0% and since then we have had historically low interest rates in Ireland, not ignoring the fact that we have always paid the rates highest interest rates in Europe.
Based on the latest published information, there are 722,886 residential customers and 90,531 buyers to let mortgages in Ireland.
There are 300,000 tracker rate customers, 175,000 floating rate customers and 99% of the remaining 338,000 short-term fixed rate customers of two to five years.
The effect of each 0.25% increase in interest rates on a €250,000 mortgage is €30 per month, so if rates increase by 1.5% you will pay €180 per month more .
There is a solution available to all mortgage holders, a solution available in all developed economies of the world, but which has not been made available by all traditional lenders in Ireland.
The simple solution is long-term fixed rates which have only been available in Ireland since October.
Both of these lenders offer fixed rates for 15 to 25 years, regardless of the loan-to-value ratio below 3%. Indeed, Avant Money has a 30-year fixed rate ranging from 2.85% to 3.15%.
Both lenders allow you to make partial payments of 10% of the remaining loan balance each year without penalty and you know from day one of your mortgage what the redemption penalty will be if you pay off the loan in full during the term. determined.
Uniquely, Finance Ireland will reduce your fixed rate when your loan to value ratio drops based on the fixed rates available at the time you took out your mortgage and not when the loan to value ratio drops.
The major lenders (noting that KBC and Ulster Bank are exiting the market) control 85% of the mortgage market but cannot – or will not – offer long-term fixed rates.
The longest fixed term available from any of these lenders is 10 years, at rates ranging from 2.85% to 3.5%, while the 15-25 year fixed rates from Finance Ireland and Avant Money are lower.
The value of AIB shares has risen 25% this year and Bank of Ireland shares have risen 37% as they have a larger UK loan portfolio where base rates have fallen from 0 to 0.5% at the course of the last six months.
Traditional lenders distort the market with massive advertising campaigns to distract mortgage customers from what is the basic consideration for any mortgage applicant, the interest rate and, more importantly, the long-term security around the rate of interest.
Look at the messages from traditional lenders, it’s about online applications, quick decisions and ‘encouraging’ an elderly relative to leave home.
You notice that there is no mention of interest rates and more importantly, long-term fixed interest rates.
If you go to a mortgage broker, you get a quick decision and online application, and you’ll also have the option of long-term fixed interest rates with great flexibilities built into these products.
- Michael Dowling is a leading mortgage and debt advisor.