Lower income households and those on tracker mortgages have been “most significantly impacted” by the European Central Bank’s interest rate hikes over the last year-and-a-half.
According to new figures from the Central Statistics Office (CSO) analysing mortgage affordability between 2020 and 2023, a large portion of the population are paying a greater percentage of their household income towards servicing debt.
This comes after the ECB raised interest rates 10 times in the last 17 months, from 0% to 4.5%, in a bid to counteract inflation.
According to the report, between the first half of 2022 and the first half of this year, the mortgage holders worst hit in terms of the cost of servicing debt as a proportion of their income were those in the lowest of five gross income bands. The proportion of these households’ monthly income going toward debt repayments rose from 32% to 40.8% over the space of a year.
The number of tracker mortgage holders paying at least one-fifth of their monthly income on mortgage repayments also almost doubled over the same period, from 7% to 13.3%.
Going back to the second half of 2021, tracker mortgage holders had the lowest debt service to income ratio at 9.4%, followed by those with variable rates at 9.8%, with those on fixed rates spending the highest proportion of their income on mortgage repayments at 10.7%.
By the first half of this year, those with variable mortgage rates now have the highest average debt service to income ratio at 10.7%, followed by tracker mortgage holders at 10.5%. Those holding fixed rate mortgages are now putting the lowest share of their income towards mortgage repayments at 10.4%.
Across all households with mortgages, monthly debt service to income ratios fell from 11.6% to 11% between 2020 and the start of 2022, but that improvement has all been lost and more, with the ratio jumping to 11.8% in the first half of this year following the ECB rate hikes.
You can find the latest rates on the MyHome.ie Mortgages page.