Charlie Weston: ‘Interest now seems unlikely to rise – but it won’t be coming down, either’
Mortgage holders and those planning to buy a home might be forgiven for worrying that home-loan interest rates were about to start going up.
Last week’s move by Bank of Ireland to increase the interest on some of its fixed-rate mortgages was interpreted as a sign that it expects European Central Bank (ECB) rates to start moving up in the next year or so. Although the bank also reduced some of its short-term rates, Bank of Ireland pushed up the cost of its five and 10-year fixed rates.
It has been quite a while since any lender in this market put up its mortgage rates.
Up to now we have had reductions, particularly from the smaller banks such as Ulster, KBC and Permanent TSB. Ulster Bank shook up the market last year when it introduced a two-year fixed rate of 2.3pc.
It is unusual for banks here to offer home-loan rates below 3pc.
We have expensive mortgages despite the ECB’s key lending rate remaining at 0pc.
We may have lost our place as the eurozone country with the most expensive new mortgages, and existing variable rate ones, but rates here are still way higher than in other countries in the current bloc.
Only Greece is more expensive.
Now there is every prospect that ECB rates will remain at 0pc well into 2020. Up to now there was an expectation that the ECB would start to raise rates from the end of this year.
Anaemic economic growth across Europe is the reason why ECB rates won’t rise for a while.
The European Commission has slashed its growth forecasts for all the euro region’s major economies and warned that Brexit threatens to make the outlook worse.
What this means is that the 300,000 or so people on trackers can look forward to continuing to have the best value mortgages, with no prospect for ages of having to pay more.
For those already on a fix, you are locked in.
People on expensive variables and those taking out a new mortgage should opt for one of those fixed rates that are under 3pc.
The fact the ECB won’t be raising its rates soon should mean there will be no more mortgage rate rises, for a while, like we saw from Bank of Ireland.
But the prospects of further reductions look remote as banks argue they have to set aside €50 of capital for every €1,000 of lending, compared with just €16 in other eurozone countries.
What that means is we are now in a mortgage situation where it is as good as it gets. Still, it could be a lot worse.