Mortgage lenders pressed to lock in fixed rates ahead of ECB hikes

Large numbers of homeowners exposed to rising interest rates are rushing to lock in to good-value fixed rates, it has emerged.

During a significant market shift, many people also abandon more expensive trailing mortgages in favor of longer-term fixed rates, brokers said.

Trackers have been seen as the most beneficial mortgages and until recently such a move would have been seen as illogical.

The European Central Bank (ECB) is expected to start raising its key refinancing rate in the coming months, a move that would make trackers and variables more expensive and mean new higher fixed rates. broker Martina Hennessy said there had been an increase in clients looking to lock in fixed rates before they rose again.

She said the number of switch requests had doubled in the first three months of this year compared to the same period last year.

The figures were inflated by customers of Ulster Bank and KBC Bank who wanted to switch mortgage providers before their mortgages were sold.

“But also, and increasingly so over the past two months, due to the expectation of more imminent rate increases,” Ms Hennessy said.

Rather than fixing for three and five years, mortgage holders now opted for fixes of five, seven, 10 and 15 years.

Yesterday, Dutch central bank chief Klaas Knot raised the prospect of a 0.5% ECB rate hike in July. Mr Knot, a member of the ECB’s governing council, said the rate hike would be needed in July if inflation continued to rise.

If, as expected, the ECB raises the refinance rate three times over the next year, it will cost a typical variable rate customer, or those on trackers, an additional €1,000 in repayments.

Every 0.25pc rise in ECB rates will cost €30 more in monthly repayments for a €250,000 home loan.

This week, ICS Mortgages announced a second hike in mortgage costs.

Its three- and five-year fixed rates will increase by 1% on all loan-to-value (LTV) tranches. It comes just two months after raising its rates. The latest 1pc increase means that the ICS five-year fixed rate will rise from 2.6pc to 3.6pc.

That means an extra €131 per month, or €1,572 per year, in repayments for a homeowner with a €250,000 mortgage over a 25-year term and a loan to value of 80%, Ms Hennessy said.

Last week, Avant Money, which shook up the market here by launching mortgages for less than 2% at the end of 2020, raised its five-, seven- and 10-year fixed rates for new borrowers by 0.2 to 0.3 points. percentage.

Broker Michael Dowling of Dowling Financial said some people with low-cost tracker mortgages are ditching trackers for fixed rates.

Such a decision would once have been considered heresy.

Trackers are priced at a set percentage of the ECB’s refinancing rate, which is currently 0pc. Most trackers are pegged 1pc above the ECB.

He said those with margins above 1% should have a financial expert look into their situation, particularly if ECB rates hit 2.5%, as some economists are predicting.

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