ECB confirms another mortgage interest rates hike - here's some expert advice on what to do

The European Central Bank has confirmed another interest rate hike of a quarter of one per cent, meaning higher repayments for those on variable and tracker mortgages. 

This is the ninth interest rate increase since July of last year. 

A mortgage expert says it may now make sense for people to lock into lower fixed rates. 

“This 0.25 per cent increase is bad news for tracker mortgage holders in particular, with a further increase possible in September,” said Martina Hennessy, Managing Director of digital mortgage platform doddl.ie.

In less than 12 months, tracker rates have jumped by 4.25%, adding €540 in interest per month to an average tracker mortgage of €250,000 with a 20-year term.

“These incremental increases have already prompted many people to relinquish their tracker and secure their repayments with a fixed rate product," Ms Hennessy said.

She noted that if the ECB refinance rate hits 4.5% by the year end, this would bring the average tracker rate to 5.65%. 

“Those who remain on tracker are keenly watching for indications of rate falls in early 2024, but it is unlikely there will be a return to the days of a 0% ECB rate in the lifetime of their mortgages.

“The pillar banks, who hold the lions share of the market and fund on European money markets are also seeing an increase in their funding costs which they will inevitably pass on to customers.

“Those rolling out of fixed rates will experience a significant increase in repayments overnight which could leave many struggling with affordability if they do not plan and get advice.

“It may make sense to exit early from fixed rate contracts early to lock in rates which still exist at sub 4 per cent as it is anticipated that Irish new lending rates have lagged behind and will continue to increase in 2023.

“I would urge existing mortgage holders set to roll out of fixed rates within the next 12 months, or those on variable rates, to review rate options now and seek market-based advice early rather than taking a wait and see approach,” Ms Hennessy said.