Mortgage lenders in Ireland were slow to pass on the ECB rate increases over the last 18 months and I would imagine they will be just as slow to pass on any decreases over the next 12 months
For first-time buyers, the largest cohort in the Irish mortgage market, the rising mortgage rates in 2023 have certainly had an impact.
The journey of becoming a homeowner in Ireland in 2023 has been marked by a series of challenges. From economic uncertainties to supply-demand issues, these hurdles have tested the resilience of those aspiring to step onto the property ladder. As we look forward to 2024 and from my humble opinion as a mortgage broker, let’s examine the challenges faced and what lies ahead for homebuyers next year.
The Irish housing market in 2023 has been characterised by a mix of challenges. The lingering effects of the global pandemic, coupled with the lack of supply and inflationary pressures, have cast a shadow over the market.
Despite these challenges, the demand for housing has remained strong, driven by factors such as a growing population and almost full employment.
A key factor influencing the Irish housing market in 2023 was rising mortgage interest rates. The ECB refinancing rate has increased from zero in early 2022 to 4.5% in September. This has hit existing tracker and variable rate customers hardest.
Other existing homeowners on fixed rates have been sheltered so far but face big increases in 2024 and beyond as their low fixed rates come to an end. Over 100,000 Irish mortgage holders have fixed rates that are ending in the next 12 to 18 months. Hopefully more mortgage lender competition will follow in 2024 to help prospective homebuyers and those looking to switch mortgages for a better deal.
For first-time buyers, the largest cohort in the Irish mortgage market, the rising mortgage rates in 2023 have certainly had an impact. The cost of mortgages and other living expenses have increased as inflation soared in 2023.
However rising mortgage rates have not yet really limited the buying power of first-time buyers too much. This is for several reasons. Firstly, mortgage lenders have been slow to pass on mortgage rate increases to homebuyers as they continue to lend based on the strength of bank deposits on which they are still paying relatively low interest.
Secondly, there was a change to mortgage lending rules for first time buyers in early 2023. The Central Bank increased the loan to income lending limit from 3.5 to 4 times income. With steady buying power the demand for housing remains strong and lack of supply means competition for first time home buyer properties remains fierce.
There are signs that supply is starting to catch up but not quickly enough to have any real effect on house prices.
I am not sure buying a home has ever been easy and as we move into 2024 it does look like the Irish mortgage and housing market will continue to be challenging.
Mortgage interest rates have hopefully peaked, and the ECB rate is expected to reduce rates in 2024. This could change depending on economic developments in Europe and the world economy.
Lenders were slow to pass on the ECB rate increases over the last 18 months and I would imagine they will be just as slow to pass on any decreases over the next 12 months.
Meanwhile, building costs continue to rise and this means prices are likely to increase further in 2024 as builders pass on costs. Increasing construction costs risk further affordability issues for homebuyers in the year ahead.
- Stephen Hamilton wrote this article on the Irish Examiner website.
