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Is this the right time to switch to a fixed-rate mortgage? - Claire Byrne

31st Jan, 2023

Tracker mortgages were once highly sought after in the Irish market, but times have now changed. This week, the European Central Bank will raise interest rates for the fifth time. This move will cost some mortgage customers thousands of euros in extra payments.

Is this the right time to switch to a fixed-rate mortgage?

Daragh Cassidy, Head of Communications at bonkers.ie, appeared on the Claire Byrne show to discuss just that.

Listen back to the interview above or take a look at the main points below

It’s almost guaranteed that the main lending rate will go up to 3% on Thursday when the ECB is set to raise interest rates again. Unfortunately, there will be additional increases following this.
Last July the ECB’s interest rates were at 0% and are now at 2.5%.
When the ECB meets again in March, rates will probably increase again by another half a percentage point.
There is a lot of uncertainty about how high rates will go after this.
How much the rates increase will depend on how inflation goes. We have seen such high inflation mainly due to energy prices, over which monetary policy has very little control.
Inflation is likely going to fall quite rapidly over the next few months, but will it fall to the ECB’s target of 2%? That’s the big question.
Most tracker customers are probably paying a margin of 1 - 1.2%, so that means on Thursday they're going to start paying around maybe 4.1 - 4.2%.
So when you take into account then all those increases, if you had €150,000 remaining on your tracker over maybe 10 or 15 years, you're looking at paying around €230 - 240 more each month unless you switch.
The aim is that if you’re paying more for your mortgage, you’ll have less disposable income to spend on other goods, which is hoped will push prices down.
This has proven slightly controversial because a lot of the increase in inflation in Ireland occurred due to Brexit, Covid-related supply chain bottlenecks, and then more recently the energy crisis, mainly due to Ukraine's conflict. Monetary policy can't really affect any of that.
If you’re on a tracker mortgage, it's really important to get good financial advice. We're back where we were in around 2007 and 2008, which kicked off the tracker scandal.
Tracker customers panicked, they got off their trackers and went on to a fixed rate before realising that they couldn't get back on the tracker.
If you leave your tracker now, you are not going to be able to go back on it.
As a general rule, if you're paying a margin of under 1%, you should stick with the tracker.
If you're paying a margin above 1% it gets a bit more tricky. In some cases, it might be better to leave the tracker and go on to a fixed rate. You do need to get the calculations right and sit down with a good financial advisor.
If inflation plummets in 3 or 4 years, the ECB may significantly reduce rates.
Banks here have been slow to pass on ECB rate hikes so far, but they won’t be so generous for much longer. We will see fixed rates increase more soon.

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