Huge increase in interest rate on Government mortgage scheme

At the launch of the Rebuilding Ireland scheme Minister Eoghan Murphy said the Government recognised that home ownership was an important aspiration in a 'Republic of Opportunity'

Charlie Weston

THE interest rate on the Government’s Rebuilding Ireland Home Loan product has been increased massively.

Rates have shot up by up to 0.75pc at a time when banks are cutting their lending rates.

The hikes mean that a family that takes out one of home loans will have to pay up to €1,200 more a year.

The higher rates will impact new borrowers under the scheme.

Rebuilding Ireland Home Loan is a Government-backed mortgage for first-time buyers which you can avail of through your local authority.

The buyers can use the loan to purchase a new or second-hand property, or use it for a self build.

The scheme is for low earners, and to qualify you must have been turned down for a mortgage from two mainstream lenders.

Mortgage broker Michael Dowling said it was “bizarre” that any mortgage rates were rising in a market where the trend was the opposite, and added that the increased were steep.

“The interest rates on the Rebuilding Ireland Home Loan product have been increased which seems quite extraordinary.

“In an environment where interest rates are benign and we are asking banks to reduce interest rates, it seems bizarre that a Government funded mortgage product is increasing rates,” the owner of Dowling Financial in Dublin said.

A decision has been taken to reduce the 25-year fixed rate has increased to 2.745pc, up from 2pc.

The 30-year fixed rate increased to 2.995pc, from 2.3pc previously. These are the longest fixed rates in the market and are regarded as extremely competitive.

However, the rate rises will add around €100 a month to the cost of servicing a mortgage of €288,000, which is the maximum loan amount under the scheme.

The monthly cost of servicing this loan on the new 25-year fixed rate will rise to €1,220 a month, an increase of €107 a month, or €1,284 a year.

The monthly cost of servicing this size of loan on the new 30-year rate will rise to €1,108 pm, an increase of € 105 a month.

It comes days after competition in the mortgage market stepped up with Ulster Bank introducing new rates that undercut their rivals. The lender reduced its five-year fixed rate to 2.2pc, for those borrowing more than €300,000.

This is the lowest mortgage rate in the market. Experts said banking rates as low as that come close to those being offered on the Continent, where mortgages tend to be much cheaper.

Some 1,200 new buyers have taken out the Rebuilding Ireland Home Loan so far.