Rising Interest Rates: 4 Actions You Should Take

Interest rates could rise to an average of 6% later this year, pending further European Central Bank hikes. With our own Central Bank easing mortgage lending rules – letting borrowers purchase properties worth up to four times their salary – it’s good news for house buyers, but they’ll be paying back a lot more on interest rate repayments than a year ago.

Here we examine what you can admit interest rate hikes.

Impact of Rising Interest Rates on Mortgage Repayments and Affordability


After several years of ultra-low interest rates, mortgage rates in Ireland are on the rise. By a lot.

Since last July, the European Central Bank (ECB) has embarked on an aggressive path of monetary tightening which has seen it increase its main lending rate from 0% to 3%, with a further hike to 3.5% almost guaranteed in March and an increase to 3.75% likely by the end of this summer.

If the main ECB rate reaches 3.75%, it’s likely that the best mortgage rate available in Ireland by the end of the year will be around 5.65%. This is because the minimum ‘spread’ or difference between the main ECB rate and the best rate on the Irish market in recent years has been around 1.9%, though competition might keep it slightly lower going forward.

However, this rate will likely be a ‘green’ rate for those buying a home with a BER of A or B or for those with over a 40% deposit. The average rate for the average first-time buyer or mover will likely be closer to 6%.


Global Trends in Mortgage Rates and Property Prices

Near-record inflation throughout the world over the past year has caused central banks globally to increase their rates aggressively. For example, rates in the US are now at 4.75%, in New Zealand they’re at 4.25%, in Australia they’re at 3.35%, and in Sweden they’re at 2.5%.

The ECB has already increased rates by three percentage points to 3% with more hikes on the way. And although the main lenders here have been slow to pass on all the ECB rate hikes (Bank of Ireland has only hiked its fixed rates by one percentage point, for example), this is unlikely to last.

Although the big rate hikes in Australia, Sweden and New Zealand have already led to an outright fall in property prices, most experts are forecasting continued price growth in Ireland, albeit at a much lower level than recent years.

This is mainly due to strong population growth, high immigration, a strong economy and a continued mismatch between housing supply and demand.

The easing of the Central Bank’s mortgage lending rules at the start of the year is also seen as being supportive of price growth.

However the impact of rising interest rates on mortgage repayments will be immense – with repayments potentially rising by over 60% for first-time buyers unless property prices fall dramatically.


Impact of Rising Interest Rates on Monthly Repayments and Affordability

For example, a first-time buyer or mover borrowing €300,000 over 30 years could potentially have got a mortgage rate around 2% until the middle of last year. This equates to a repayment of just under €1,109 a month.

Managing loans and savings can be a challenge, especially in uncertain economic times. With new interest rates in mind, we’ll explore the best ways to manage loans and savings in Ireland.


Understanding Loans

Loans are a common way to finance large purchases or cover unexpected expenses. However, it’s important to understand the different types of loans and their associated costs before making a decision.

There are two main types of loans: secured and unsecured. Secured loans require collateral, such as a car or home, while unsecured loans do not. Secured loans generally have lower interest rates, but if you default on your payments, the lender can repossess your collateral.

When comparing loans, it’s important to look at the Annual Percentage Rate (APR), which includes all associated fees and interest rates. This will give you a clearer picture of the total cost of the loan.


Reviewing Existing Loans

If you already have a loan, it’s important to review the terms and conditions to ensure you’re getting the best deal possible. Look for any early repayment fees, and consider overpaying your loan if you’re able to. This can help reduce the total amount of interest you’ll pay over the course of the loan.

Overpaying Loans

If you’re able to make overpayments on your loan, it can be a smart financial move. Not only will it reduce the total amount of interest you’ll pay, but it can also shorten the length of your loan term. Be sure to check with your lender first to ensure there are no penalties for overpaying.

Reviewing Savings Rates

It’s also important to regularly review the interest rates offered by banks on their savings accounts. Shop around to find the best deal, and consider switching banks if you find a higher rate elsewhere. Be sure to also consider any associated fees or restrictions when comparing savings accounts.


What We Recommend You Should Do

To manage your loans and savings effectively in light of increasing interest rates, we recommend the following:

  1. Review your existing loans and look for any opportunities to overpay or refinance.
  2. Consider switching to a bank with a higher savings rate if you’re not getting the best deal.
  3. Monitor your spending and saving habits to ensure you’re making the most of your income.
  4. Review your pension and any investments you currently have to understand if changes are required to how they are managed.

By following these tips, you can take control of your finances and make informed decisions about your loans and savings. Seek the advice of an impartial financial professional if you need clarification on any aspect of your finances.

For a no-obligation review of your individual circumstances, please don’t hesitate to get in touch.