AFTER a decade of low mortgage rates, 2022 saw mortgage rates increase significantly and homeowners facing an increase in their largest financial outgoing.
We have moved into a cycle of rising interest rates with the Central Bank increasing rates by 2.5pc in 5 months last year and all Irish mortgage lenders increasing rates, some multiple times.
What we can expect for sure is that 2023 will see further rate increases.
As a nation of short-term fixed-rate mortgage holders, we are exposed to mortgage rate increases. More than 90% of new mortgages in 2022 were drawn down on fixed rates with the most popular rates being three and five-year fixed rate terms.
There are €12bn in mortgages due to roll off fixed rates in the next three years and what awaits these mortgage holders is higher rates and increased repayments.
The lowest mortgage rate available in Ireland as we entered 2022 was 1.95% and coming into 2023 it is 2.45%.
An increase of 0.5% means an increase in repayments of €25 per month for every €100,000 owed over 25-year term, taking a €300,000 mortgage balance this increase is €75 per month or €900 per annum.
Those existing mortgage holders due to roll out of fixed rates in 2023 should consider whether it is wise to exit their current fixed rate early to lock down a longer-term fixed rate now before rates increase further.
For those looking to take out a mortgage in 2023, there is a lot to take in right now with rate and mortgage lending rules changes. Unless you are prepared to do a lot of research yourself you need to work with a broker who offers market-based advice from all major lenders.
It is so important that you do not take the first mortgage rate offered to you as to do so could cost you significantly. Five year fixed rate is a very common rate chosen by first-time buyers but there is a massive difference of 3.05% between the lowest and highest five year fixed rate on the market (5.5% -v- 2.45%).
Taking the average new mortgage draw down Q3 last year of €292k you would pay €513 per month more on the higher rate which is €30,780 over the five-year period.
A top tip is to do your research or get market-based advice when taking out a mortgage. Interest adds no value - it’s an unnecessary cost so you need to get your rate as low as possible.