Average mortgage rates fall for third month in a row

Mortgage rates have fallen for the third month in a row despite no major reductions in lending rates by the main banks.

The average rate being paid for a new mortgage in December was 4.19pc, a decrease of 0.06 percentage points from the previous month.

However, this is up 1.5 percentage points from a year previously.

The decline in rates in December has been attributed to people having to take out larger mortgages, due to rising property prices. Larger mortgage qualify for lower rates.

PTSB cut one of its rates recently.

And people choosing shorter-term rates, which tend to be lower than longer-term rates, are also understood to be behind the latest fall in average new mortgage rates.

People increasingly opting for green mortgages, which are cheaper than conventional, may also account for the lower interest rates over the last three months.

The latest fall in rates meant Ireland had the 10th lowest rates in the Eurozone, the Central Bank of Ireland said in a release.

However, rates vary hugely across the currency bloc from as low as 2.44pc in Malta to as high as 6.06pc in Latvia.

The Eurozone average also fell to 4.06pc, its first month-on-month drop in over two years.

Mortgage rates have begun to ease in recent weeks in some countries as the cost of raising funds on capital markets eases in advance of an expected drop in ECB rates later in the year.

Data from the Central Bank also showed that the average interest rate on household deposits with a fixed maturity moved higher to 2.73pc.

But this was still well below the Eurozone average of 3.29pc.

Interest rate on demand deposit accounts remained much lower at 0.12pc, which was the same as November.

Just under €140bn of the €153bn on Irish households currently have on deposit is in these accounts.

Previous analysis from Bonkers.ie showed that Irish savers are collectively missing out on up to €3.5bn a year in interest by not moving their money into accounts with the best savings rate.

Daragh Cassidy of Bonkers.ie said: “Irish mortgage rates continued their surprising downward trend in December with rates falling for the third month in a row.”

PTSB cut its four-year fixed rate near the start of December, which would partly explain the drop, he said.

“First-time buyers might also be choosing shorter-term fixed rates, which tend to be lower than longer-term rates.

“This would make sense as it looks like the European Central Bank (ECB) will start to cut rates over the coming months so mortgage holders may not want to lock themselves into a particular rate for too long.”

Mr Cassidy said continued property price growth also means first-time buyer mortgages are getting bigger and bigger.

Recent figures from the Banking Federation show that the average loan amount is now almost €300,000.

This means more homebuyers would be eligible for a so-called “high-value” mortgage with some lenders. And these have lower rates too.

Most market observers now believe the ECB will not start to cut rates until around June.

Tracker customers will benefit almost immediately from any cuts.

Mr Cassidy said that for everyone else, it’s less clear cut.

The main lenders have passed on less than half of the ECB rate hikes to date. So it’s unlikely AIB, Bank of Ireland and PTSB will respond to any rate cuts immediately.

He said that for the non-bank lenders like Finance Ireland and ICS Mortgages, we could see them drop their rates fairly significantly over the coming year as the cost of raising money on capital markets, from where they get all of their finance, falls.

However, their rates right now are very high compared to the main lenders.

Source: Charlie Weston, Irish Independent – 15th February 2024