Irish households on lower incomes are currently spending an average of 40.8% of their earnings on mortgage repayments after the aggressive ramping up of ECB’s rates.

Low-income households and those with tracker mortgages have been “most significantly impacted” by debt repayments eating into their earnings since the European Central Bank (ECB) started a cycle of lifting interest rates more than a year ago.

In the last seventeen months, the ECB has raised interest rates ten times from zero to 4.5 per cent which is the most aggressive hike-up of lending costs ever taken by the bank as it tries to tackle inflation.

Recent figures from the Central Statistics Office (CSO) analyse mortgage affordability between the years of 2020 and 2023 which examines debt service to income ratios across households with different incomes, and holders of different types of mortgages.

Amid the first half of 2022 and the first half of this year, the worst hit mortgage holders in terms of the cost of servicing debt as a proportion of their income were those in the lowest of five gross income bands. A significant proportion of these households’ monthly income for use towards debt repayments rose from 32 per cent to 40.8 per cent over the space of a year.

The amount of tracker mortgage holders paying at least one-fifth of their monthly income on mortgage repayments almost doubled over the same period, from 7 per cent to 13.3 per cent.

Going back to the second half of 2021, tracker mortgage holders had the lowest debt service to income ratio (9.4 per cent), followed by those with variable rates (9.8 per cent), with those on fixed rates spending the highest proportion of their income on mortgage repayments (10.7 per cent).

After first half of this year was reached, those with variable mortgage rates now have had the highest average debt service to income ratio (10.7 per cent), followed by tracker mortgage holders (10.5 per cent). Those holding fixed-rate mortgages are now putting the lowest share of their income towards mortgage repayments (10.4 per cent).

In all households with mortgages, monthly debt service to income ratios fell from 11.6 per cent to 11 per cent between 2020 and the start of 2022, but that improvement has all been lost and more, with the ratio jumping to 11.8 per cent in the first half of this year.

The chairman of the Association of Irish Mortgage Advisers, Trevor Grant said that although ECB rates may have peaked, Irish mortgage holders will continue to feel the pressure of higher interest rates “for some time yet”.

Mr Grant noted particular pressure on an estimated 70,000 “mortgage prisoners” whose mortgages were sold by mainstream lenders to investment funds and who cannot refinance, and an estimated 100,000 mortgage holders whose fixed rate will expire within the next year and who will face the “significant financial shock” of a new rate.

“All mortgage holders should make it their priority to ensure they are on the best mortgage deal, whether that be switching to a different product with the same lender or switching to a different lender altogether,” said Mr Grant, urging customers to consult a mortgage broker, or for those struggling with repayments to familiarise themselves with the Banking and Payments Federation Ireland’s Dealing with Debt initiative