As we wave goodbye to a decade of low mortgage rates, 2023 will be the year for homeowners to take control and make smart decisions to keep their biggest outgoing affordable.
So 2022 saw the ECB base rate increase from 0pc for the first time in six years — it now stands at 2.5pc and it won’t stop there.
How much is your House worth in 2023?
The pace of the staggered increases means that over 300,000 tracker mortgage holders now have to question the value of their once-coveted product.
After long being told to hang on to trackers at all costs, they now need to judge whether a move to a fixed rate will pay off in the medium term as rates hike.
The ECB is clear that it will continue to increase rates to bring inflation under control in the Eurozone and it is expected that its rate will hit 3pc this year, its most aggressive rate cycle ever.
What goes up must come down but if the ECB rates do start to decline at the end of 2023 and into 2024, it does not mean that this would be passed on to consumers. Irish rates have been some of the highest in the Eurozone for a decade and I would expect that this will remain the case even after rates start to decrease again.
We need to remember that even when new market entrants had rates of under 2pc, our pillar banks were lending at 3pc.
There is still a lot of value in the Irish mortgage market, however, you do have to work harder to find it. There are good rates out there and every bank has one niche value product, but you are going to need good advice to find these across the board.
Over 90pc of all new mortgage lending is drawn down on fixed rates — but, as a nation that tends to opt for short-term fixed rates, we are exposed to interest rate fluctuations.
Some €12bn in existing mortgages are due to roll out of fixed rates over the next three years — many of these were locked in at under 2.5pc.
We are definitely in a 4pc environment for the next two years or so, and it is vital that anyone entering the market does not take the first rate that is offered and gets good advice to find the right product.
An important thing for homeowners to watch out for in 2023 is the entry of non-bank lenders offering competitive rates and niche product features to fill the gaping hole in the wake of the exit of KBC Bank and Ulster Bank.
We have seen non-bank lenders such as ICS and Finance Ireland as well as Spanish lender, Avant Money, introduce some excellent long-term fixed rates, and flexible options regarding overpayment on fixed terms, capped break penalties and cascading rates.
These are products and features that have not been seen previously in the Irish market.
The Irish mortgage market does not need 20 lenders but the current situation where the vast majority of mortgage lending is now concentrated among three main banks means the market is less competitive.
New entrants will only commence lending when Irish mortgage rates reflect true funding costs — and at the moment our rates will have to rise to reflect that reality. So 2023 should see MoCo — which is now authorised by the Central Bank of Ireland as a Retail Credit Firm — and Nua Money enter the market.
They will usher in an era of technology-enabled lending designed to make applying for a mortgage easier.
While conservative mortgage lending and low levels of household debt should mean that some people have a buffer, for many, continued rate increases plus the general cost of living is hitting disposable income levels.
I believe that 2023 will be the year when the lenders’ own rules start to affect mortgage lending more than the Central Bank rules.
For mortgage hopefuls, rising interest rates are putting further pressure on affordability and affecting their chances of passing stress tests applied by lenders.
January 1 saw the introduction of the Central Bank’s revised macro prudential lending rules, changing those in place since 2015. Now first-time buyers can borrow up to four times their income, up from 3.5 times, while second-time buyers can borrow up to 90pc finance, from a previous 80pc ceiling.
The rules are seen as a guardrail but the lenders’ own underwriting policies will determine how much they will lend — and I think this will impact most on the level of mortgage approval achievable in 2023.
The banks have living allowance requirements which will be heavily affected by the increase in the cost of living, and, combined with the interest rate rise, this means not all applicants will be eligible to borrow four times their income.
A decade of new mortgage holders are now experiencing rate increases for the first time which has peaked awareness of the huge financial gains that can be made by taking control of their mortgage and switching.
Last year saw switcher volumes surging by the highest levels on record, with non-purchase mortgages (switching and top-ups) increasing by 116pc year on year.
Your mortgage is a controllable cost and switching should become the norm — my hope is that homeowners become aware that they have options beyond their own lender’s offering.
Many homeowners are needlessly paying an average €3,857 in extra mortgage repayments per year by not switching lenders, the latest Irish Independent
doddl.ie mortgage switching index has found.
What was once a sellers’ market is now seeing a levelling of the scales as purchasers’ enthusiasm has been curbed by an expectation of further rate increases.
We are still experiencing huge demand from mortgage hopefuls with enquiries and application volumes reflective of pent-up demand in a market where the average first-time buyer repayment is now €400 cheaper than the average national rent of €1,400.
First-time buyers hold a number of cards going into 2023 and the new Central Bank rule change to four times income will stimulate demand for couples with a good income.
Everything that the State is doing is geared towards first-time buyers, with the help-to-buy scheme being extended to end 2024 and the First Home Shared Equity Scheme creating further demand for new homes.
Meanwhile, ‘green’ rates are some of the lowest on the market and a must for those who are purchasing a home with building energy rating of B3 or above.
Those looking to retrofit or carry out home improvements are also eligible.
Martina Hennessy is managing director of doddl.ie
