Tens of thousands face mortgage crunch as Central Bank warns hikes have yet to pass fully to households

The Central Bank warned yesterday that the full hit of higher borrowing costs has not yet been felt, including the 40pc to 50pc of mortgage-holders who have not seen their monthly repayments rise even though the European Central Bank has hiked rates 10 times in 16 months to 4.5pc.

Despite a looming threat, the number of people switching mortgages, including to fix interest rates, has plunged almost to zero, figures from the Banking and Payments Federation of Ireland (BPFI) show.

Re-mortgage and switching activity declined 78.3pc in volume terms year-on-year and almost 82pc in value compared to October 2022 – when there was a rush to lock in at still low fixed-rate deals.

Those very low deals are gone, but around 145,000 households are now at particular risk because they are on fixed rates coming towards the end of terms or have standard variable rates increased by banks, only at a fraction of the pace seen elsewhere in Europe, according to Mark Coan, of mortgage broker MoneySherpa.

Tens of thousands of those borrowers are “sleepwalking” towards steeply higher repayments over the coming two years as banks adjust their pricing up, he warned.

“If you are being prudent you have to be thinking standard variable rates will be 5pc,” he said.

The Central Bank of Ireland said it was already seeing some evidence of a rise in now mortgage arrears, but concentrated among borrowers with tracker deals that have increased automatically as the ECB hiked interest rates to 4.5pc and among people who had previously been behind on repayments.

The slow pass through of higher costs means increases could feed through the financial system, even as markets increasingly bet rate hikes have peaked and are set to fall next year, after the rate of inflation in the eurozone fell more quickly than expected last month.

However, Central Bank Governor Gabriel Makhlouf said yesterday a potential further rate increase remains on the cards.

“We could go up one more rung [of the interest rate ladder],” he said.

Rising borrowing costs are not deterring first-time buyers, who remain highly motivated to get out of the rental market.

First-time buyer mortgage approval activity hit a new high in the year to the end of October, despite an overall slowdown in mortgage activity year-on-year, the BPFI data shows.

The Central Bank left the current terms of its mortgage rules – which determine how much banks can led and borrowers borrow – unchanged after its latest review providing added certainty to would-be-buyers.

Still, new buyers are paying almost €30,000 more on average compared to last year, according to the BPFI.

First-time buyers were approved for 2,687 mortgages in the month of October. This accounted for 62.9pc of the 4,273 mortgages which received approval across the month.

There were also 926 mover mortgages, which represented 21.7pc of the total.

The BPFI revealed that the total number and value of the mortgages which received approval dropped last month.

The number of mortgages approved was up 2.7pc compared to September, but plummeted by 20.1pc compared to the same period last year.

Meanwhile, the value of these mortgages was also down 16.9pc in comparison to the corresponding period last year.

This fall was driven by lower switching levels, according to the BPFI.

Activity from first-time buyers has also risen as a result of programmes introduced by the Government, such as the Help to Buy and the First Home shared equity schemes.

However, these buyers are paying more for homes this year as housing prices continue to rise.

The average first-time buyer mortgage value was €295,033 in October this year, up €27,000 compared to the same month last year.

“Our latest figures show continued growth in mortgage approvals for first-time buyers (FTBs), with the number of mortgage approvals for FTBs buying or building their own homes rising to a record level of 30,508 in the 12 months to the end of October, while the value of those approvals rose to more than €8.7bn,” BPFI chief executive Brian Hayes said.

He said this cohort continued to buck the overall trend of mortgage activity slowdown with first-time buyers volumes and values having grown in nine out of 10 months of this year.

First-time buyer mortgages and household incomes have also reached the highest levels on record, the BPFI reported last week.