Ireland Ranks Seventh in Euro Area for New Mortgage Rates

Ireland is currently the seventh most expensive country in the euro area for new mortgages, according to recent data from the Central Bank. As of the end of July 2023, the average mortgage rate remained steady at 3.6 percent, unchanged from June. While this figure reflects a decline of 51 basis points compared to the same month last year, it still exceeds the euro area average of 3.3 percent.

Latvia recorded the highest average mortgage rate among the 21 countries surveyed, standing at 4.16 percent. In contrast, Malta offered the most affordable rates at 1.76 percent. Within Ireland, the average interest rate for new fixed-rate mortgages was 3.52 percent, also unchanged from June and down 43 basis points year-on-year. New variable mortgages, on the other hand, averaged 4.09 percent, a slight decrease of 1 basis point from the previous month.

Shift Towards Fixed-Rate Mortgages

A significant trend emerged in July, with the proportion of new mortgages that were fixed rate rising to 86 percent, an increase from 69 percent in July 2022. This marks the highest share of fixed-rate mortgages since August 2023.

Fiona McMahon, a senior mortgage adviser with NFP Ireland, expressed disappointment over the stagnation in average mortgage rates. “This marks a change in the trend which developed earlier this year, which saw the cost of Irish mortgages consistently falling,” she noted. McMahon also cautioned potential buyers and existing mortgage holders to be aware that further reductions in rates may be limited.

Following a pause in rate cuts by the European Central Bank (ECB) last July, analysts expect rates to remain unchanged in the near future. “As eurozone inflation appears to be under control and the economy shows resilience, it’s looking unlikely that there will be any more ECB rate cuts over the coming months,” McMahon added.

Len Bird, a credit underwriter with mortgage lender Nua Money, suggested that the ECB might even consider raising rates in upcoming quarters if inflation pressures resurface across the region. He highlighted that while mortgage arrears have improved, the uncertain global economic outlook poses risks for the Irish economy.

Rising Mortgage Activity

In line with increasing house prices, the volume of new mortgage agreements has reached record levels. In July 2023, the total amount drawn down in new mortgages was €1.2 billion, representing a €185 million increase, or 19 percent, year-on-year. Additionally, the value of renegotiated mortgages rose to €313 million in July, which is €28 million higher than the previous month and €152 million higher than July 2022.

Fixed-rate mortgages accounted for 64 percent of these renegotiated mortgages, remaining unchanged from June. The average interest rate on these renegotiated fixed-rate mortgages was 3.47 percent, consistent with the previous month but down 42 basis points annually.

In a separate note, the average interest rate on household overnight deposits has remained at 0.13 percent since November. With Irish households holding approximately €160 billion in savings, more than €140 billion is kept in overnight accounts.

Rachel McGovern, deputy chief executive of Brokers Ireland, characterized this rate as “extremely poor.” She urged the government to act on the funds review report conducted last October in the upcoming budget. McGovern pointed out that a preference for shorter-term, more accessible deposit accounts among Irish households cost them nearly €800 million in unearned interest last year alone.

The current landscape of mortgage rates and borrowing in Ireland underscores both challenges and opportunities for existing homeowners and prospective buyers as they navigate a fluctuating economic environment.