Commenting on the recent ECB decision to keep interest rates unchanged, Brokers Ireland said even when the move to reduce the rate begins there is still a 'rocky road' ahead for many mortgage holders.
”We’re only at the beginning of finding out the likely impact of the ten ECB interest rates increases that have already taken place, with Central Bank figures showing a three percent increase in short-term arrears, that is for less than 90 days, in Q3 last year, the latest date for which such figures are available," Rachel McGovern, Director of Financial Services at Brokers Ireland, said.
She noted that it generally takes a minimum of 18 months for the impact to emerge.
“Given that, along with the fact that over eight in ten mortgages taken out in recent years were for fixed periods the impact will take yet further time to emerge,” she said.
She stated that the vast majority of fixes are for short periods of a couple of years, even though there were available options for much longer terms. Large number among the 400,000 plus on fixed rates will be maturing this year and facing much higher interest rates than they ever anticipated.
“These mortgage holders need good advice to decide what their next move should be. And they should take this on board well in advance of the fixed rate end date," Ms McGovern remarked.
She said that green mortgages, as well as equity growth, where it applies, can favourably impact rate options.
“The issue requires careful consideration around likely market conditions over the medium term, which at the best of times is uncertain and, crucially, individual circumstances," she continued.
Ms McGovern said mortgage holders whose loans have been transferred to non-bank lenders and credit servicing firms are amongst the worst hit by recent rate increases, and can be charged up to double the rate of pillar banks. Again, she said, careful and timely consideration of options is important.
“If you are in danger of falling into arrears it’s important to act and seek help before that happens,” she said.
She said tracker mortgage holders will have held their loans for a minimum of 16 years, since tracker mortgages stopped being offered then.
”They at least have benefited from years of very low rates,” she commented.
Mortgage Arrears
Meanwhile, commenting on mortgage arrears and repossessions for Q4 2023 published by the Central Bank of Ireland this week, Brokers Ireland said the growing number in new arrears, up to 90 days, clearly indicates the distress being caused to borrowers as a result of rapidly rising interest rates.
“The three percent rise in early arrears in Q4 2023, a rise of 673 mortgages, comes on top of a three percent rise in the previous quarter and is a clear indication of the financial stress being caused by the ten ECB interest rates hikes we’ve seen since July 2022 and the follow-on increases by Irish lenders, some of whom have not applied full follow-on increases," Ms McGovern said.
She said the issue gives cause for concern.
“We may be only beginning to see the impact of the ten ECB interest rate hikes that have taken place," she noted.
The Central Bank has pointed out that early arrears are driven primarily by non-bank lenders and she said that roughly 80 percent of borrowers in recent years have opted for fixed rate mortgages with over six in ten fixing for less than three years.
“There could be approximately 80,000 borrowers who this year alone will come off low interest fixed rates into the current environment of much higher rates,” she said.
Ms McGovern encouraged all borrowers struggling to make their repayments to make contact with their lenders before the arrears happen, since the outcome is likely to be better than afterwards.
“It’s a difficult issue to face up to but it’s better to be proactive. Ideally they should look for professional help from a mortgage broker who has the expertise in dealing with lenders,” she said.
Ms McGovern said the outcome of the Minister for Finance Michael McGrath’s Mortgage Arrears Group comprising the Departments of Justice, Housing, and Social Protection, due to report in the second quarter of this year, will be “eagerly awaited.”
