Hard pressed homeowners could be in line for some welcome relief after mortgage rates dropped to their lowest level in nearly two years.

The total volume of new mortgage agreements has increased by almost 20% over the past year, according to a new report by the Central Bank.

The value of mortgages totalled €1.2bn in December, an increase of €134m or 13% in monthly terms, and up €190m or 19% from December 2023.

However, the latest CBI Retail Interest Rate report for December 2024 also reveals that the average interest rate on new mortgages is now at its lowest level since April 2023.

The weighted average interest rate on new Irish mortgage agreements fell 17 basis points from 3.97% in November to 3.8% in December.

For fixed rate mortgages, the average rate was 3.62%, down 17 basis points from November (3.79%). Variable rates averaged 4.34%, down eight points month-on-month (4.42%).

Even still, despite the drop, Ireland's average mortgage rate remains the seventh highest in the euro area and 45 basis points higher than the eurozone average (3.35%), but experts believe further cuts are on the horizon.

Trevor Grant, chairperson of Irish Mortgage Advisors, said: “The fall in the average interest rate on new mortgages is a trend that should continue throughout the year given the recent ECB rate cuts and the expectation of more to follow.

"At 2.9%, ECB’s key lending rate – that is, the rate which impacts tracker mortgage holders and which also puts downward pressure on variable and fixed rate mortgages - is now at its lowest level in two years. 

"As a result, sub-3% mortgage rates could become a reality for many Irish borrowers from this summer, depending on how quickly lenders cut their rates following last month’s ECB rate cut and any future ECB rate cuts this year.

"This will mark a significant milestone for mortgage borrowers and should lead to substantial savings for homeowners and house buyers. Indeed, Irish mortgage rates could even fall to as low as 2.5% or below in 2025 if the ECB continues to cut its main lending rate in the coming months."

Grant believes that falling ECB rates could also give non-bank lenders more scope to cut their rates this year as non-bank lenders rely more on wholesale funding than the mainstream banks.

"This in turn could potentially trigger a mortgage price war and better mortgage deals for borrowers. Indeed, there is already evidence that this is happening," he continued.

"Non-bank lender Núa Money has just announced that it is cutting mortgage rates and we expect other non-bank lenders to follow suit. Some bank lenders – including MoCo, Permanent TSB and Bank of Ireland - have also cut their mortgage rates in recent months."

"Given the steep house prices in this country, homeowners and house buyers should make it their prerogative to make the most of falling rates. The higher the price of the home, the higher the mortgage and in turn, the higher the mortgage interest bill."

(Pic: Getty Images)