Mortgage Rates Hike Will Likely Shatter Your Budget This Year
January 16, 2023

Mortgage bills are about to cost additional hundreds of Euros this year because of a further hike in interest rates. Experts say that mortgage buyers could be hit with 3 better rate upgrades. This is okay news for those already on fixed-interest rate deals, but it means homeowners with variable and tracker deals will pay hundreds of Euros more every month.

Having said that, it will not affect the budget of those already on a fixed-interest rate deal, and it is also problematic for those as well, as they will be put on a standard variable interest rate. This is not good news even for those scrutinising buying new houses.

Housing affordability is at its worst in Ireland. Property costs hit nearly eight times the average salary. While property prices are already unbearably high, the rise in mortgage rates is another turn of the screw.

2023 will be grueling for people planning to get on a property ladder. With the three-rate rise, the lending rate has surged from 0.5% points to 1.5% points, increasing the deposit size by the same amount. 

What do experts say about the hike in interest?

The European Central Bank has determined to raise the rate of the mortgage in order to curb the inflation rate. Still, unfortunately, this is making the housing sector a nightmare for those looking to take out a mortgage or already owe a mortgage.

Things are more complicated for those whose credit scores could be better. Most mortgage lenders are strict about their lending criteria. You will only qualify for a mortgage at better interest rates if you have a satisfactory credit score.

If your credit report could be better, you are more likely to get higher interest rates than those with good credit ratings. Mortgage rates have already hiked a lot. You will be charged more because of your poor credit rating. 

If you already have some debt to be paid off, like small loans in Ireland, a lender will likely call your repaying capacity into question. With so many doubts about your ability to repay the debt, they will likely charge a higher interest rate.

Experts suggest you take out a mortgage when you are entirely sure about your repaying capacity. Your credit file should be in good condition because this can only prevent you from attracting high-interest rates. 

Further, experts suggest you clear your current dues, so you do not have any debt other than a mortgage. Improve your income sources. High income leaves no chances for doubts to flash across; therefore, you are highly likely to get the nod at the most competitive interest rates.

However, according to experts, it could be challenging to get an affordable mortgage deal despite all these efforts. Seeing the current scenario, experts are speculating that European Central Bank is more likely to raise rates by 0.5% points in the next two months. 

Rates are expected to rise further by 0.25% points in May and then again by 0.25% points in June. In other words, the trend of rising mortgage rates in Ireland is expected to go up. There is no place for sentiments in the bank. 

Consulting a broker has become more important

It has become more important to consult a broker to choose the best mortgage as a result of increased interest rates. The hike in interest rates does not ensure that you are about to get a deal at the same rate from all mortgage lenders. 

Multiple factors are looked at to determine the interest cost you will be charged. For instance, interest rates vary by credit score. The higher the credit score, the lower the interest rate will be.

It could be challenging to choose a mortgage lender offering you the best deal that suits your budget. You will undoubtedly need a broker who has access to the entire market. They will be able to connect you to a lender that best suits your financial condition after evaluating your needs, goals, credit report, and income. 

Why are mortgage rates going up?

Mortgage rates are going up because the base rate is going up. A higher base rate means you will have to pay more in interest. The base rate is going up in order to curb the inflation rate. This whittles down the buying power of people. When the demand is in control, prices become stable. 

When the government raises interest rates for mortgages, car loans and credit cards, people are left with less money to spend on other things. This will slow down the economy. Companies’ revenues are affected by less money to spend on clothes, takeaways, vacations, and other luxury and entertaining items. 

Lower revenues mean lower wage increases, which results in less spending. 

It is essential to note that the impact of the base rate is not just on mortgages. The interest costs for other loans are also affected when the bottom rate increases. Whether it is credit card bills or an emergency cash loan, they will be more expensive.

You will likely have even higher interest rates if you have a poor credit rating. Though you can do nothing about the inflation rate, you can improve your credit score. If your credit rating is good and your repaying capacity is strong, you will likely be able to avoid higher interest rates just because of the lack of the former.

The final word

Mortgage rates are going to hike this year, and as a result, it will cost you hundreds of Euros every month. With increased mortgage rates, your buying power will reduce. The current scenario clearly states that the coming months will be very excruciating for mortgage holders.

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