Mortgage gap now at record level as some homeowners are paying over €7,000 extra a year

The gap between good value and expensive mortgages is now so wide that the highest rate in the market is double the lowest one.

Mortgage rates now range from 3.45pc to over 7pc, according to the Irish Independent Doddl.ie Mortgage Switching Index for the first quarter of this year.

It means some homeowners could be overpaying a record average €7,812 more annually by sticking with their current lender.

This is a massive increase from €3,587 just a year ago.

It is calculated based on the highest variable rate of 7.15pc versus the lowest standard rate on the market, currently 3.6pc.

The index is based on the average new mortgage drawn down in the last quarter of last year, which was €309,502.

Recent rate cuts point to huge potential savings for smart homeowners who switch lenders, said Doddl.ie managing director Martina Hennessy, who compiles the index.

The huge gap in what some non-bank lenders are now charging and the best rates in the market means some are now paying €2,212 a month. In contrast, the lowest rate translates into €1,566 a month. This is a record 42pc gap, Ms Hennessy said.

Those who are eligible for green rates can save an additional €300 a year, with the lowest on the market now starting from 3.45pc, she said.

Latest figures show a big drop in switcher activity in the first three months of the year.

Ms Hennessy said: “The expectation that disinflation would lead to rate decreases meant that many mortgage holders chose to hold on to variable rates in the first quarter until rates dropped.”

But in the last six weeks, there have been rate decreases from six lenders as the impact of reduced funding costs starts to positively effect pricing. “Non-bank lenders ICS, Finance Ireland and MoCo have not yet reduced rates. These lenders are reliant on markets for their financing, so we should see them also pass on reduced costs of funding,” Ms Hennessy said.

She said a big question for those rolling off fixed rates right now is whether rates will drop further.

She said the latest cuts have brought competition to the market, with the main pillar banks focusing on the green mortgage space, where rates start at 3.45pc.

“If you have carried out home improvements, which positively impact the building energy rating of your home, then you could be eligible for a much lower rate on your mortgage by switching,” Ms Hennessy said.

Tracker mortgage holders can be hopeful of cuts to their mortgage rate this year, with market analysts believing we could see rate decreases from next month.

Ms Hennessy said mortgage holders should not just accept the rate their lender has to offer.

If it makes sense to switch, they should act now, she said.

​Meanwhile, it has emerged that rent pressure zones will continue into next yea r, ensuring the capping system runs beyond the general election.

The so-called RPZs restrict rent increases to 2pc a year.

The current restrictions were due to run out at the end of the year.

The Government will today decide to extend the zones into 2025.

Since December 2021, annual rent increases in RPZs are capped in line with the rate of general inflation or 2pc a year, whichever is lower.

Source: Charlie Weston & Fionnán Sheahan, Irish Independent, 14th May 2024