Ireland's deputy governor of Consumer and Investor Protection: 'We are acutely aware of the challenges and pressures borrowers are facing'

Ireland's Central Bank has released new data on how rising interest rates coupled with high inflation are impacting families.

“We are acutely aware of the challenges and pressures borrowers are facing with the rising cost of living and rising interest rates," Deputy Governor Consumer and Investor Protection Derville Rowland said in a statement from the Central Bank of Ireland.

The Central Bank of Ireland recently published new research on the impact of escalating interest rates and high inflation on households and credit markets. Deputy Governor Vasileios Madouros said that the rapid economic adjustment of the past 18 months cuts across the entirety of the bank's mandate, with the analysis of credit developments being critical to understanding how rising interest rates are affecting the economy. 

The research found that although households, in aggregate, are in a more resilient position than in the past, some groups of borrowers are more vulnerable to shocks caused by the combination of high inflation and climbing interest rates. The impact of interest rate changes varies widely across households, with up to half of all mortgage holders at retail banks likely to have experienced no increase in repayments by the end of 2023.             

Based on the research, it appears that the impact on each household depends to some degree on the type of mortgage they hold. Specifically, customers with tracker mortgages and interest-only mortgages are among the most exposed to repayment shocks. This group tends to have larger mortgage balances and longer loan terms remaining than customers with variable-rate mortgages.     

However, due to high levels of fixed rate mortgages, up to half of all mortgage holders at retail banks may not experience any increase in repayments by the end of 2023, and approximately 40% will be insulated from higher interest rates by the end of 2024. The research also suggests that the most exposed customers are likely to have taken out their loans between 2004 and 2008, when credit conditions in the Irish market were very loose. This implies that there may be a correlation between vulnerability to the current repayment shock and measures of vulnerability stemming from the financial crisis.