Dr Seán Healy, Social Justice Ireland.

Interest rate rise to affect struggling mortgage holders

“The Government must do more to protect vulnerable households against the impact of mortgage rate increases.”

That’s the view of Dr Seán Healy, CEO, Social Justice Ireland. He made the comments following a decision by the European Central Bank last week to raise interest rates by half a percentage point to address inflation. It was the first time the bank has raised rates since 2011.

Irish tracker mortgage holders will be affected, while other mortgage holders may be impacted depending on how banks react to the announcement.

Dr Healy said the move will give more struggling mortgage holders into poverty.

“One in 20 people with a mortgage were living in poverty in 2021. When mortgage interest is factored in, this increases to more than one in every 13. The expected interest rate increases on these households could have a dire impact, particularly in light of other cost of living increases. Banks could, of course, decide to absorb these increases and take a hit on profit, however in the event that they do not do the right thing, Government must intervene to protect the most vulnerable,” he said.

The interest rate rise will impact approximately 320,000 mortgage holders with tracker and variable rate mortgages. However, some households will be hit harder than others. As at December 2021, there were more than 47,000 home mortgages in arrears, 6.5 per cent of all home mortgages. This figure does not include Buy to Let mortgages, which fund homes for tenants in the private rented sector, of which 12,500 (14 per cent) are in arrears.

“According to the Survey on Income and Living Conditions, more than one in five owner occupiers fell into arrears in the year to 2021, with 80 per cent of those falling behind on two or more payments. The planned increases will put significant pressure on these households who are already struggling to keep the roof over their heads. As part of Budget 2023, Government must ensure that these households do not fall further behind,” said Colette Bennett, economic and social analyst.

“Part of the solution will be to increase the incomes of those on low and middle incomes; however there is also need for more innovative thinking.

“As at December 2021, there were 5,406 mortgages in arrears over 10 years, with an arrears value of €865 million and a total balance outstanding of €1.5 billion. Government could prevent these households becoming homeless by acquiring an equity stake in properties in mortgage distress, leaving families in place, and increasing the State’s social housing stock.

“Social Justice Ireland proposed a pilot scheme for those mortgages in arrears of more than 10 years, at a cost of €100m in Budget 2023,” concluded Ms Bennett.