For the first time in three years, Irish mortgage rates match the euro area average. Competition did that, not the ECB. Here is why the distinction matters.
Something happened in the Irish mortgage market that has not happened since March 2023. The average rate on a new Irish mortgage fell to 3.48% in May, which matched the euro area average exactly.
For three years, Irish borrowers paid more than their European neighbours. That gap has now closed. Ireland has dropped to 12th highest out of the 21 eurozone countries, down from 10th in April.
The ECB held all three of its key rates steady on Thursday 23 July. Here is what has changed, and what it means for your mortgage.
Why have Irish mortgage rates fallen while ECB rates rise?
This looks contradictory. The ECB raised its deposit rate to 2.25% on 11 June, its first increase in this cycle, and yet Irish mortgage rates fell.
The answer is competition, not central bank policy.
Ireland’s mortgage market became heavily concentrated after Ulster Bank and KBC exited. Fewer lenders meant less pressure to compete, and Irish borrowers paid for that. Over the past year, several lenders have cut rates as credit unions and non-bank lenders have grown their share of the market and forced the pillar banks to respond.
Trevor Grant, chairperson of the Association of Irish Mortgage Advisors, has made this point directly: competition, rather than the ECB, is the main influence on home loan rates in Ireland right now.
That is good news, and it comes with a warning attached. Competition can close a gap. It cannot hold a gap closed forever if the underlying rate environment moves against it.
What did the ECB do on 23 July?
It held. All three key rates were left unchanged, with the deposit facility staying at 2.25%.
The context: the ECB had raised rates by 25 basis points on 11 June, becoming the first major central bank to respond to the energy shock from the war in the Middle East. Eurozone inflation passed 3% ahead of that meeting, well above the ECB’s 2% target. The bank now expects inflation to average 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028.
July was not a projection meeting, so no updated staff forecasts accompanied the decision. The Governing Council noted that energy prices, while highly volatile, are currently close to the baseline of the June projections and well above the levels recorded before the conflict in the Middle East. The ECB has also been explicit that it is not pre-committing to a rate path and will decide meeting by meeting.
A hold is not the end of the story. The next decision comes in September, with fresh staff projections alongside it, and that is the meeting to watch.
Definition: A basis point is one hundredth of one percentage point. A 25 basis point rise means the ECB rate increases by 0.25%.
Who is affected, and by how much?
Around 100,000 Irish mortgage holders are on tracker rates, and they felt the June increase immediately. Trackers move in lockstep with the ECB, so the July hold means no further change for now, but any future rise feeds straight through to their repayments.
Everyone else has more control than they think.
Fixed rate holders are unaffected for the duration of their term. The bank cannot change your rate while you are locked in. Roughly 93% of new Irish mortgages are now fixed, which tells you what borrowers have made of the last few years.
Variable rate holders have no automatic link to the ECB, but Irish lenders have historically used a rising rate environment as cover to move variable rates upward. The average variable rate stood at 4.03% in May, well above the 3.44% average on new fixed agreements. If you are on a variable rate, you are already paying a premium for flexibility you may not be using.
Anyone coming off a fixed rate is in the most important position. When your fixed term ends, most lenders roll you onto their standard variable rate, which is usually their most expensive product. Your lender is not obliged to offer you their best rate, and generally will not.
What should you do now?
- Find out what rate type you are on and when your fixed term ends. Your lender’s app or your annual statement will tell you.
- If your fixed rate ends within the next 12 months, start the conversation now. Waiting until it expires means you lose the chance to compare offers properly.
- If you are on a variable rate, get a comparison done. The gap between variable and fixed rates has been wide enough to make switching worthwhile for many borrowers.
- Do not try to time the ECB. The point is not to predict the next meeting. The point is to be in a position where it does not dictate your repayments.
- Talk to a mortgage broker. Lenders pay the broker’s fee, not you, and a broker sees the whole market rather than one lender’s shelf.
The window where Irish rates match the European average exists because of competition between lenders. The way to benefit from competition is to make lenders compete for you. That does not happen if you stay where you are and hope.
Wondering whether to fix, switch or sit tight after the ECB decision? Talk to us at Lynx Financial Services for a straight answer on your options.
