Homeowners urged to budget for higher repayments as they come off fixed rates

ECB president Christine Lagarde. Photo: Reuters

Homeowners on fixed mortgage rates who are due to come to the end of the term within the next two years have been warned to start budgeting for higher repayments.

This is because the rate they are paying now is likely to be a lot lower than the rate they will get when they come to refix, according to Daragh Cassidy of Bonkers.ie.

His comments come after the European Central Ba nk (ECB) again increased its key lending rates, pushing them to their highest level in more than two decades.

The ECB announced a 0.25 percentage point rise, which will take the key refinancing rate to 4.25pc. It is the ninth rate rise by the Frankfurt-based central bank since last July.

There is some hope that this could be the last interest rate rise in the current cycle. That is because there is strong evidence of a slowdown in the European economy and some fears of a recession, all of which is expected to dampen inflationary pressure.

ECB president Christine Lagarde said the bank’s next moves would be determined by what happens in the economy.

“We have an open mind as to what the decisions will be in September and in subsequent meetings,” she told reporters. “So we might hike and we might hold.”

The latest hike will raise most tracker rates to 5.25pc, adding another €12 a month to repayments for a family with €100,000 left to pay.

Switch your mortgage this year - Sinead Ryan

Over a year, this works out at €144 from this latest rise alone. Borrowers on tracker rates automatically face higher interest rates and repayments under the terms of their contracts.

And banks are likely to again increase new fixed rates.

The ECB has now lifted its interest rates nine times since last July, in what is seen as an act of unprecedented aggression.

Mr Cassidy said a family who took out a fixed rate over the past three or four years would probably be paying a rate of between 2pc and 3.5pc.

However, most fixed rates are now between 3.75pc and 5.5pc – and are likely to go higher after this week’s announcement.

“I expect all the main lenders to hike their fixed rates again over the coming weeks,” Mr Cassidy said. “By the end of the year, the cheapest rate on the market is likely to be over 5pc, compared to just 1.9pc this time last year.” ​

This week, Bank of Ireland raised its fixed rates for the fourth time in a year.

About 60,000 mortgage holders are coming to the end of their fixed rate this year. And another 70,000 fixed rates will end next year.

If the latest ECB rate rise is fully passed on by banks on fixed rates, it will mean repayments on a typical first-time buyer mortgage of €300,000 will rise by €45 a month, or €540 a year.

More than 60,000 homeowners due to come to the end of a fixed rate this year have been warned to start budgeting now for higher borrowing costs. It is expected that typical fixed rates will be 5pc by the end of the year.

All of the nine ECB rate rises get passed on to those on trackers. About 120,000 are still on tracker rates, which were the best rates in the market until last year. The number on trackers has halved as homeowners have rushed to ditch their tracker for a fixed rate.

A typical borrower on a tracker will have just over €100,000 and 15 years left to pay. Banks stopped offering trackers 14 years ago.