From the gas bill to the weekly shop, the cost-of-living crisis seems to be getting worse, but nothing has a bigger impact on the family budget than a mortgage.
nterest rates have been rising steadily since last summer, and it’s not over. The base rate is now 3.5pc, which, given that it languished close to zero for the last eight years, means big monthly bills for homeowners, landlords and, as a consequence, renters too.
Why is this happening?
It’s been a bit of a perfect storm in the financial world in the past year. Kicked off by the invasion of Ukraine, which led to immediate pressure on oil prices (Russia produces an enormous amount of the gas and electricity used by Europe), and a post-Covid return to economic normality, which led to spending increasing.
That, in turn, led to inflation hikes and by default to the European Central Bank (ECB) clamping down by whacking up borrowing rates.
Inflation should be around 2pc all the time. It ran up to five times that, and is still stubbornly around 8pc.
That means the price of everything goes up. When the ECB employs an interest rate increase it stops the gallop, as people contract their spending and hunker down. But it takes time. Your mortgage may go up today, but inflation won’t come down for six months.
When will it be over?
Line up 100 economists with crystal balls and none of them will be able to say with certainty.
The ECB says there’s at least one more rate rise to come, possibly two before summer, but all data modelling and economists I’ve spoken to believe we are on the cusp of flattening out the cycle. That’s the good news.
The bad news is that all are agreed interest rates will land at a ‘new normal’. In other words, once they reach 4pc or even 5pc (they’re at 3.5pc now), there they will stay.
So any hopes of your mortgage repayments falling are dashed. On the other hand, day-to-day costs such as energy, food and other things will level out or drop during the year.
Mortgages
Banks largely held off on passing along the increase since last July. It’s not because they were feeling charitable, but because most loans are pre-funded.
Rates were locked in already, so there was nothing to pass on to customers. They also have a massive deposit base, and are now earning interest on it.
But the gloves are off now. Bank of Ireland, PTSB and AIB, along with non-bank lenders such as Avant and Finance Ireland, have all announced rate increases across the board. Tracker holders, of course, felt the pain from the start, as their loan is directly linked to the underlying ECB rate, but they’ve had a very favourable run for the last decade.
Whether they should now fix is becoming open to question (see below).
Fixed-rate customers are safe – for now – but will get a fright when their contract renews. Variable-rate customers are most exposed. Already paying the highest rates, if they are not looking to fix their loan, there’s no good excuse why not.
Daragh Cassidy, of independent comparison site Bonkers.ie, says: “The ECB’s move was widely expected and it will hike again in March. AIB and Bank of Ireland have only hiked their fixed rates for new customers by one percentage point. And PTSB has hiked its fixed rates by an average of just under one percentage point.
“So clearly more increases are on the way.
“Those on variable rates are also likely to see an increase in their repayments over the coming weeks”.
Trackers
The average margin on a tracker is 1.15pc, which means the average customer will be paying 4.65pc, with at least one rate rise to go.
For those with €150,000 remaining it adds around €200 pm in total to repayments since mid-2021. Mark Coan, of Moneysherpa.ie, says with 244,000 tracker mortgage holders, there is €1.3bn to be saved if they switch to fixed rates.
“That could mean a difference of €5,580 per year by switching to the best fixed rate available on the market (currently 3.17pc),” he says.
Not everyone can do this. The best rates are reserved for those with ‘equity’ in their home, so find out yours by dividing the value of your house into the outstanding mortgage and multiplying by 100. Anything under 80pc puts you in the switching market; anything under 50pc gets you the lowest rates.
For instance, a mortgage of €200,000 on a house worth €450,000 is a loan-to-value ratio of 44.4pc. That’s very attractive to banks as the risk is low. Mr Coan adds: “Many still think tracker mortgages are a good deal, but our numbers show that’s often no longer the case.
“Customers should consider taking action now to avoid future increases, by either fixing their rate with their current lender or completing a mortgage switch to fix with a new lender”.
Beware of phishing scam texts
Phishing is a form of scam where fake emails or websites, supposedly from a legitimate company, seek to obtain your confidential account details.
Fraudsters purport to be “concerned” about your account or ask to you to verify details such as your account number or date of birth, but the only thing they are concerned about is gathering enough data to steal your money.
Revenue Commissioners and banks have issued warnings over these fraudulent activities.
Some of the communications can look incredibly convincing, and that’s what the scammers rely upon.
The Irish League of Credit Unions (ILCU) is the latest to notify customers of a scam.
“The scam consists of a fraudster sending a text message and/or making a phone call claiming to be from a credit union and informing the recipient that their credit union account has been put on hold or locked,” the ILCU said.
“Recipients are then asked to click a link to a cloned credit union website and enter their personal details to verify their account, or they are asked for their personal details over the phone.”
The ILCU said it will “never contact an individual member by phone, text or email asking them to click a link to verify their account or give personal account details over the phone”.
If anyone does receive such a communication, they are advised not to give out account details, but to report it to their credit union and An Garda Síochána.
Pupils learn to grow with GIY
One of my favourite things to do in spring is to start planting seedlings for all the delicious herbs, tomatoes and vegetables to see me through summer.
I was delighted to see students at Scoil Mhuire gan Smál in Inchicore, Dublin 8, launching the SuperValu Let’s Grow initiative in partnership with Waterford-based GIY, headed by Michael Kelly.
The initiative aims to get homegrown food centre-stage in classrooms by enabling 50,000 kids to learn how to grow their own vegetables and herbs. Seed packs get them started and teachers are provided with learning materials.
The good news is that you can get a free classroom kit for your school at supervaluletsgrow.ie.
