Interest rates on new mortgages crept upwards again in the month of July to reach 4.06%, up from 4.04% in the previous month, a full year after the European Central Bank (ECB) began its aggressive campaign of hikes to drive down sticky inflation.
The latest figures by the Central Bank showed interest rates on new mortgage agreements stayed above the eurozone average of 3.86%, but only slightly.
In addition, the interest rate for new fixed-rate mortgage agreements was 4.04% and the rate for new variable-rate home loans was 4.18%.
New mortgage interest rates have jumped 1.43% higher since a year earlier as the ECB hikes made their way through to customers, latest figures from the Central Bank showed.
The ECB is set to meet again on Thursday afternoon and experts are split on whether the regulator will impose a 10th interest rate hike. Most analysts have predicted if ECB hawks do decide to hike rates again it will be by 0.25%.
The ECB has raised interest rates by 4.25% in an effort to get inflation down to 2%. Eurozone inflation is currently around 5%.
Money markets are now pricing in a 68% chance the ECB raises interest rates by a quarter of a percentage point. The view has changed rapidly in recent weeks as evidence builds that Europe is facing persistent inflation that’s been made worse by soaring energy prices.
At the start of September, traders were firmly in the camp that the ECB would hold rates steady to keep economic growth intact, with markets reflecting 20% odds of a hike.
But in the face of reports that the ECB now expects inflation to stay above 3% next year, analysts say it’ll be increasingly difficult for the central bank to stand pat, especially as the euro starts to buckle.
Last week, Dutch Governor Klaas Knot told that investors were “maybe” underestimating the likelihood of an increase in borrowing costs.
Some borrowers do not feel the immediate impact of ECB rate hikes, but those with tracker mortgages feel the full brunt of each increase.
Broker Michael Dowling of Dowling Financial said a further rate rise of 0.25% will bring the average tracker mortgage rate to 5.65%.
“Therefore, from July last year to this month, monthly mortgage repayments have increased by €280 per month or €3,360 over the year,” he recently wrote in the .
Banks have not passed the full rate increases onto their variable or fixed-rate customers, but these customers have seen rates increase by 2% on average.
“The average mortgage for new customers is €300,000 and these customers will have seen a rise of €320 a month or €3,840 in a year,” said Mr Dowling.
Meanwhile, the Central Bank figures also showed the volume of new mortgages agreements increased by 14% compared to June to €870m, a decline of 4% in annual terms.
Renegotiated mortgages totalled €286m, compared to €249m in the previous month. The associated weighted average fixed interest rate was 3.92 per cent in July 2023.
