Commenting on the recent ECB decision to raise its main refinancing rate by a further 0.25 percent, the ninth increase since July last, bringing it to 4.25 percent, Brokers Ireland said “one would be hopeful while not at all confident, that the strategy will achieve stability rather than fragility and destruction among borrowers – personal and business borrowers.”
“This will pile a lot more pressure on borrowers, adding an extra €26 a month to a €200,000 15-year term mortgage on a 1.25 percent tracker rate and up €415 a month since the start of the increases in July last," Rachel McGovern, Director of Financial Services at Brokers Ireland, stated.
She said it was notable that many economists are now questioning the ECB strategy, whether or not the two percent inflation target is justifiable, if it should be increased, and indeed if the strategy is outdated or appropriate to today’s changed market.
“The Central Bank recently said that if the Irish economy continues to evolve in line with its expectations, we are likely to see only modest increases in household financial distress. One would certainly wish that that would be the worst case scenario. However, we are already seeing signals of a change in economic data.
“At ground level, the ECB increases feel like they are too far too fast, and they are causing deep worry among borrowers," she added.
There are about 315,000 tracker mortgage and variable rate mortgage holders, and 400,000 plus mortgage borrowers on fixed rates, of which over six in ten are fixed for less than three years.
Ms McGovern said many of the latter group will be exiting these fixed rates in the near future and will be coming out into a challenging higher interest rate market at a level they would never have anticipated.
“Unfortunately not enough borrowers availed of the excellent long-term fixed interest rates available in the market a year ago, many of which have since been withdrawn by lenders. That said, there are still saving opportunities to be had for many borrowers, particularly those who have a BER of between A1 and B3 and can avail of a green mortgage," she remarked.
Ms. McGovern encouraged all borrowers falling into arrears to make contact with their lenders at an early stage to seek a solution.
“Ideally they should look for professional help from a mortgage broker who has the expertise in dealing with lenders,” she concluded.
