Homeowners warned not to panic as huge gap emerges in fixed rates on offer

MORTGAGE holders who want to lock in to a fixed rate to avoid surging European interest rises have been warned not to be panicked into signing up for the wrong rate.

he advice comes after it emerged that a huge gap has now emerged in the market between the highest and lowest fixed rates on offer.

This is particularly the case with five-year fixed rates, according to research carried out as part of the latest Irish Independent Doddl.ie Mortgage Switching Index.

Jumping on the first fixed rate that is offered could cost average homeowners an extra €30,780 over that five-year period, the index has found.

A massive three-percentage-point gap between the highest and lowest five-year rates has emerged, according to Doddl.ie managing director Martina Hennessy.

“In the five-year fixed rate market, there is currently a huge 3.05-percentage-point difference between the highest rate at 5.5pc and a 2.45pc rate from another lender,” said Ms Hennessy.

She said that, for an average home loan of €292,939 on a 30-year rate, the differential on these two rates is €513 per month.

Over the five years, this works out at a difference of €30,780.

“The key message is, don’t panic and opt for the first fixed rate offered to you,” Ms Hennessey said.

“Ensure you get market-
based advice because if you are locking into a rate you could end up paying substantially more for your mortgage even in the short term.”

She said we were now out of a cycle of low rates and heading into what would appear to be a more sustained period of interest rate increases than expected earlier this year.

The index is based on the average mortgage drawn down for new lending in both the first-time buyer and
second-hand mover markets
in the third quarter of this year.

The highest overall rate on the Irish market now is a
five-year fixed rate of 5.5pc, while the lowest available is a four-year fixed rate of 2.15pc.

Many tracker mortgage holders were now looking to switch to a fixed rate, after 2pc increases in the European Central Bank key refinancing rate in past four months and further rises forecast, Ms Hennessy said.

“We have seen a significant increase in enquiries from homeowners who are now considering relinquishing their tracker rates for the first time in over a decade,” she said.

A very standard tracker margin is 1.1pc.

With the ECB base rate at 2pc, these tracker borrowers are now on a rate of 3.1pc.

Further rate increases are expected.

This has prompted many tracker mortgage holders with just a few years remaining on the mortgage to lock in to fixed rates.

“Some fixed rates are now lower than their tracker rates and they are increasingly attracted by repayment security,” said Ms Hennessy.

Many tracker mortgage holders have lower loan to values and, as such, have low long-term fixed-rate options open to them.

Rates of 10-year fixed of 3.25pc, 15-year fixed terms of 3.4pc and 20 years at 3.5pc are now proving attractive.

“However, if you do move off your tracker rate to a fixed rate you will not be offered your tracker rate back at the end of the fixed period by almost all lenders,” said Ms Hennessy.

“The decision for tracker mortgage holders is whether they can afford the increase and just how far the ECB rate will rise.”

Standard variable rate mortgage holders with the pillar banks have yet to see an increase in their rates but are also exposed to interest rate hikes.

There are more than 220,000 variable-rate mortgage holders in Ireland paying up to 4.5pc currently. If variable rates started to increase, these mortgage holders would be exposed to repayment hikes, she said.