AFTER SUCKING UP and taking our medicine over the last year or so, it’s time for the reward.

With inflation largely under control, European interest rates should fall some time in the first half of the year, possibly as early as April.

That’s the logic from most investors, economists and other ‘market experts’ anyway.

This comes despite the fact that policy makers at the European Central Bank (ECB) have been trying to downplay the possibility of rate cuts as they battle still-persistent inflation.

The fear is that over-optimistic investors could pour more money into markets on the expectation that interest rates will be cut, actually making inflation worse. 

Nerves were hardly settled by the fact that eurozone inflation rose from 2.4% to 2.9% between November and December, although core inflation – which strips out volatile categories such as energy and food – dipped slightly to 3.4% from 3.6%.

But whether it’s earlier or later in the year, it looks fairly likely that the ECB will cut rates some time in 2024.

In terms of how any of this high-level policy-wrangling matters to Irish consumers – higher interest rates drive up borrowing costs.

The record rounds of ECB interest rate hikes were what caused Irish mortgage costs to surge last year.

The higher rates typically added several hundred euro onto monthly repayment costs depending on the size and the term length of the loan.

Over the coming years, tens of thousands of mortgage holders will come off fixed rates. Monthly increases of around €250 are likely for this group as they face much higher borrowing costs.

New home buyers also face much higher repayments compared to their peers who bought just over a year ago.

The question for all of these groups is the same – if ECB rates come down in 2024, when will Irish mortgage costs follow?

The accuracy of economic predictions is often unfavourably, and justifiably, compared to blindfolded monkeys throwing darts at a board.

Unfortunately, when it comes to Irish mortgage pricing, the picture is a little fuzzier again.

Let alone cutting rates, Irish banks may not even be finished increasing them.

Generally, banks make more money when interest rates are high, their deposit rates (how much they pay out on savings) are low and mortgage rates are high.

Irish mortgage rates were already among the highest in the eurozone before the round of interest rate hikes, while deposit rates were among the lowest. This left the banks perfectly placed to capitalise on the ECB rate hikes and resulted in bumper returns for Irish lenders in 2023.

It also meant that Irish banks could afford to take their time raising mortgage rates, as they had a big cushion in how much money savers had on deposit.

It has resulted in a situation where analysts think Irish mortgage rates could still rise slightly in the coming months.

It would be in contrast to international markets such as England, where new mortgage rates have dipped from almost 7% in August 2023 to just under 6%. Most assumptions would be that this would be replicated in some form across Europe if/when ECB rates fall.

A lack of competition is also a potential issue. Mortgage lending is dominated by AIB, Bank of Ireland and Permanent TSB. Mortgage switching fell by 80% between August 2022 and August 2023, when Irish consumers were already slow to change their mortgage providers. This provides little incentive for the bigger lenders who already have lots of mortgage customers to dramatically cut prices.

There was some positive recent news for borrowers. Permanent TSB, the smallest of the three main lenders and the most eager to win new customers, last month reduced the rate of its four-year fixed loans by 0.4%.

However, the firm’s variable rate for existing customers will increase by 0.4% from 17 January.

The cut for new customers was generally viewed as a move to attract new business, rather than in response to anything going on with the ECB. 

It shows how Ireland’s three main lenders are not currently under serious pressure to respond to ECB rate cuts.

There has been some suggestion that political pressure to increase deposit rates for savers could put the squeeze on bank margins, also making mortgage price cuts less likely.

But deposit rate increases have so far been meagre, with Irish lenders considered the slowest in Europe at passing on higher rates to savers.

Despite this, similar to mortgage customers, Irish savers have been slow to move their business elsewhere, again reducing competitive pressure on the banks.

This is good news for mortgage holders – it means banks have more leeway to cut borrowing costs if they wish.

This all adds up to an uneven picture for Irish mortgage holders for 2024. ECB rate cuts and low deposit rates are good news for homeowners. 

But the slow reaction of Ireland’s main three lenders to ECB changes and a general lack of competition in the market should serve to dampen some of the potential excitement.

The result is that dramatic changes in mortgage rates in 2024 are relatively unlikely and Irish borrowers will probably have to get used to higher mortgage rates. But then, given how high rates were before, they probably already are.