How will the ECB’s rate increase affect my mortgage? -Morning Ireland

With the European Central Bank’s (ECB) governing council meeting today, it is expected that the ECB will announce its plan to end its net asset purchases and raise interest rates. 

In light of this, Head of Communications at bonkers.ie, Daragh Cassidy sat down with Petula Martyn to discuss what an increase in mortgage rates will mean for Irish mortgage holders and what their options are.

Have mortgage rates in Ireland dropped recently?

Yes, they have.

There was a drop in interest rates in April.

However, this small drop in mortgage rates must be contextualised as Ireland’s average rate currently stands at 2.77% which is still almost double the Eurozone average of 1.59%.

But it is true mortgage rates have fallen over the past year, from 2.8% to 2.77% while in the Eurozone rates have increased from 1.26% to 1.595%.

Why did mortgage rates drop in Ireland?

This is down to competition in the mortgage market which has helped keep a lid on rates for now, albeit at a high rate.

As well as this, the main Irish banks are quite well funded with deposits which means they are less exposed to rising costs on the global market.

However, this is set to change as the ECB’s plans to increase its rates will lead to an increase in mortgage rates in Ireland. 

Should I get a fixed mortgage rate?

For most people, the answer is yes. By Irish standards, there are some good value fixed mortgage rates available over 10, 15, and 20-year periods. These rates may not be around in a few months time. 

The benefit of having a fixed rate over a long period of time is that it can give you peace of mind for the next decade or so, which means that whatever happens globally your mortgage repayments won’t change. 

However, if you have a mortgage and you’re paying only a 1% margin, then you’re probably better off staying on your tracker mortgage for now at least. This is because when the ECB starts raising its rates, it's unlikely that these increases will be more than 1 or 2% over the next two years.

This means if you have a tracker mortgage you’ll still be paying around 2 or 3%.

Should I switch mortgages or not? 

This decision is entirely up to you. I would advise you to visit a mortgage broker and get some professional advice.

This is because switching to a fixed mortgage rate may not be the best option for you. This will depend on whether you will face breakage fees if you move to a fixed rate early or move home.

However, for most people, switching to a fixed rate is looking like the most suitable option. 

How much will it cost someone with a tracker mortgage when rates increase?

For example, if you have €200,000 remaining on your mortgage over a 20-year period and the ECB increases its rates by 0.5%, then you’ll be repaying an extra €45 or so a month.

If the ECB increases its rates by 1%, then you will be paying double that figure.

Can I switch to a green mortgage? 

Yes, you can.

To switch to a green mortgage your house must meet certain criteria to qualify for it. For instance, you will have to have a building energy rating of at least 3.

If your house was built before 2010, and you haven't made any improvements to your home, it is unlikely that you will qualify.

Switch and save on bonkers.ie

With mortgage rates expected to rise, switching to a new mortgage could save you thousands over the term of your mortgage.

Luckily our free mortgage comparison tool will allow you to review the lowest rates available from Ireland's main lenders in seconds.

You can also cut the cost of your other household expenses on our site.  Our comparison services can help you lower your energy, broadband, banking, and insurance bills today!

Take a look at our mortgage guides

Discover all you need to know about mortgages and switching mortgages. 

• Learn how to compare mortgages with bonkers.ie. 
• Read our guide on how to switch mortgages.
• Find out how mortgage applications are assessed here. 

Head over to our blog and guide pages to stay up to date on the latest banking news and top tips.

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