Finance Ireland announces big hike in its mortgage rates

With energy bills at record levels and food inflation at close to 10%, the last thing households want to worry about is rising mortgage rates.

However with the ECB having hiked rates by 1.25% over the past few months, and with more rate hikes almost a certainty, that’s what we’ll have to contend with.

Finance Ireland is the latest lender to increase its rates following recent rate rises from Avant Money and ICS Mortgages.

Here's everything you need to know...

What are the new rates?

Finance Ireland’s three and five-year fixed rates will increase by a whopping 2% for new customers. 

This means first-time buyers with a 10% deposit will now pay a rate of 5.95% if they choose the lender’s five-year rate. 

Its variable rate for new and existing customers will also increase by 2% to between 4.75% and 5.15% depending on the size of your deposit or loan-to-value ratio.

These increases will add around €300 a month to the average mortgage payment and are well in excess of the 1.25% hike which the ECB has so far announced. Indeed, the vast majority of mortgage seekers will find better value elsewhere and it seems Finance Ireland is practically closing for new business for the immediate future, similar to ICS mortgages.  

Finance Ireland's longer-term fixed rates over 10 to 25 years will 'only' increase by between 1.49% to 1.58% depending on the term and the size of the deposit a mortgage seeker has. But these might still be worth a look given the increasing uncertainty over mortgage rates over the medium to long term. Indeed, all Finance Ireland's longer-term fixed rates are now cheaper than its three and five-year rates. For example, if you have a 20% deposit you can get a 20-year fixed rate with Finance Ireland for 4.83%. 

See here for more into on the pros and cons of fixed rates.

Existing fixed-rate customers with Finance Ireland will see no change to their rate. However they’ll be faced with higher rate options when they come to the end of their fixed-rate period. 

When do the rates come into effect?

For new customers the new rates come into effect immediately. 

For those in the process of taking out a mortgage with Finance Ireland, if you draw down your mortgage before Friday 14th October you can still avail of the old rates. This was extended by a week following criticism that the original deadline was too short. 

However this still means people who are in the process of buying their home with Finance Ireland or who are in the process of switching to the lender to avail of a cheaper rate don't have much time to act. In fact, some switchers who may have spent weeks gathering documentation and submitting their switch application may suddenly find it's no longer profitable to move lender if they aren't able to avail of the old rates.

Looking forward, all eyes are on AIB, BOI and PTSB, which so far haven’t passed on any of the ECB rate hikes.

BOI still has a four-year 'green' rate of just 1.90% for example while PTSB has a four-year rate of 2.05%. 

However, with the ECB expected to increase rates again to 2% at the end of the month, it seems only a matter of time before the ‘main’ banks also increase their rates. So the aforementioned deals are unlikely to be around for much longer. 

Over 80pc of our loan applications in the past year have been for fixed terms of 10 years or more as customers look to lock in certainty in a period of widely forecasted interest rate increases. Overall, we have funded strong mortgage volumes through this year, however these interest rate increases we are implementing are a direct result of significant increases in funding costs over recent months.

Finance Ireland spokesperson

Why are interest rates increasing? 

Inflation. 

Eurozone inflation is rising at its fastest pace since the creation of the euro over two decades ago. In some countries, including Ireland, prices are rising at their fastest pace since the early 1980s.

See here for an explanation on why inflation is increasing.

To combat inflation the ECB has raised rates by 1.25% over the past few weeks to try to bring inflation under control and the official rate is expected to hit around 3% next year. This would mean the cheapest mortgage rate on offer from banks would likely be 4% or more.  

This expectation of a further increase in rates is raising the cost of funds on global money markets, which in turn is putting pressure on non-bank lenders such as Avant Money, Finance Ireland and ICS Mortgages, which rely heavily on these markets for funding, to hike their rates. 

The main retail banks banks are part able to fund their mortgages through their vast deposit books so are less exposed to rising costs on capital markets for now.

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