THE European Central Bank delivered its FIFTH rate cut this week.
Just twelve months ago, the ECB’s main refinancing rate stood at 4.5 per cent. But on Thursday, bosses slashed that figure back to 2.75 per cent.
And there is more good news with up to five more reductions to come this year.
These cuts mark a significant shift in the ECB’s monetary policy, aimed at easing borrowing costs and stimulating economic growth across the Eurozone.
Lower interest rates should, in theory, provide relief to Irish businesses and households, particularly those with variable-rate loans.
However, some homeowners coming to the end of their fixed rates are facing a “cliff edge” because they are coming to the end of deals taken out at much lower interest rates than are now currently available.
Fianna Fail MEP Billy Kelleher today urges homeowners to shop around when their fixed mortgage comes to an end — and calls for cheaper EU mortgages to be made available here.
IN recent years, as variable interest rates for mortgages shot up to in excess of four per cent, fixed-rate mortgage holders were shielded from the attack on their pockets.
However, this good fortune is ending for many fixed rate mortgage holders.
Central Bank of Ireland data tells us that 140,000 households were expected to roll off their fixed-rate by the end of 2024, and another 50,000 are due to see their fixed-rate mortgages disappear by the end of this year.
While interest rates are slowly coming down, those coming off a fixed-rate mortgage will still face a cold, painful shock when they are offered a new fixed rate by their bank or start searching the market for other options.
For years, our average interest rates have been some of the most expensive in the Eurozone, and this is unlikely to change any time soon.
That is why I am urging mortgage holders to shop around. While your existing bank must offer you their best possible fixed rate, it might not be the best rate on the market. There may be better rates and better products available.
Additionally, with the increase in house prices, a property’s loan to value rate may decrease, thereby opening up new, cheaper interest rates.
Furthermore, if homeowners have invested in green retrofitting, they may also be eligible for lower rates based on their BER certificate.
It is essential homeowners make use of the variety of providers to get the cheapest rate.
SWITCH RULES
While the Central Bank has brought in rules to make it easier and less cumbersome for homeowners to make the switch, a study published by the Banking and Payments Federation Ireland found less than 30 per cent of homeowners ever consider switching, with even less making the switch.
In fact, in 2023 when interest rates were peaking, only seven per cent of mortgage holders whose fixed rates were expiring switched providers while a staggering 44 per cent re-fixed at a higher rate with the same lender.
Over the last five-and-a-half years, as a member of the European Parliament’s Economic and Monetary Affairs Committee, I have consistently highlighted the lack of competition in our mortgage market.
I have raised this issue with the European Commission and European Central Bank at EU level, as well with as the Department of Finance and Central Bank of Ireland domestically.
SIGNS OF IMPROVEMENT
We are finally beginning to see signs of improvement.
There are new players entering the mortgage market, such as Interbank, MoCo and Nua Money, bringing much needed competition and choice for consumers.
Crucially, new legislation will allow all credit unions to offer mortgages.
There are costs associated with switching, such as solicitor fees, plus the time required to research your options.
Mortgage holders should not be put off and should grasp the best possible outcome when their fixed rate ends.
REDUCED HASSLE
The recent switching rules from the Central Bank reduce the hassle in switching, and the Competition and Consumer Protection Commission offers a handy online tool to help make comparisons.
The most important thing to remember is that those mortgage holders who switched between 2019 and 2022 saved, on average, €2,000 per year. It is worth the effort!
While there is cause for some optimism regarding the Irish mortgage market, Irish consumers will continue to pay over the odds until our average mortgage interest rates align with the Eurozone average.
Structural and regulatory improvements are desperately needed to ease the pain of hard-pressed Irish homeowners.
Just like the European Single Market allows all of us to buy and sell cross border easily, a European Banking Union would allow all of us to get financial services from anywhere in the EU.
All European citizens should have access to the broadest range of mortgage, credit and financial services, no matter where they live in the EU, while at the same time being protected by the same level of consumer protection.
