Number of home buyers opting for fixed-rate mortgages drops

The proportion of Irish home buyers opting for fixed-rate mortgage contracts has fallen, possibly in anticipation of further interest rate cuts.

The Central Bank’s latest retail interest rate figures show fixed-rate contracts constituted two-thirds (66 per cent) of mortgage contracts agreed in May.

This was down from 70 per cent in April and 86 per cent in May last year.

The number of new buyers here opting for fixed rates has risen sharply in recent years. Back in 2014, fixed-rate products accounted for just 10 per cent of Irish home loans.

The recent fall-off comes ahead of expected European Central Bank (ECB) rate cuts. Frankfurt cut its headline rates by 0.25 per cent in June as euro area inflation eased and is expected to implement at least one further cut this year.

The regulator’s latest data showed the average interest rates charged on new mortgages in the Republic fell by seven basis points to 4.17 per cent in May, leaving mortgage rates at their lowest level in nine months.

The average rate here exceeded the euro-area average (3.8 per cent) by 37 basis points, meaning Ireland had the joint sixth highest rate in the single currency bloc.

However, rates varied significantly between euro-area states from as low as 1.97 per cent in Malta to as high as 5.97 per cent in Latvia.

“The fall in the average interest rate on new mortgages will be a relief to house-hunters, particularly given that the average rate is now the lowest it has been since August 2023,” Trevor Grant, chairperson of the Irish Mortgage Advisors, said.

“Despite this, house-hunters should bear in mind that recent signals from the European Central Bank suggest that following its June rate cut, the ECB is in no major hurry to cut interest rates again,” he said.

“Euro-zone inflation is still higher than what the ECB would like it to be – so the ECB will likely be cautious about cutting rates until inflation is under control, though rates are thankfully heading lower rather than higher,” Mr Grant said.

He also warned that “even if the ECB reduces its rates further this year, Irish home-loan mortgage rates are highly unlikely to fall to the same extent”.