Business Property & Mortgages

Sunday 23 April 2017

BoI and AIB preparing to hit homeowners with rate hikes

Charlie Weston and Laura Noonan

THE country's two largest domestically-owned banks look set to hike interest rates for variable rate customers.

The move could mean extra payments of €60 a month for a family with a €200,000 mortgage.

Bank of Ireland (BoI) boss Richie Boucher said the lender had so far not passed on the two ECB rate rises from earlier this year, and he warned that his bank could not continue to absorb higher costs of borrowing money on international markets without raising its own mortgage rates.

The bank did not say when it would pass on the two rate rises, which would amount to 0.5pc going on variable rates.

However, the warning comes as almost 5pc of BoI's owner-occupier mortgage holders are already in arrears of more than 90 days -- up from 3.7pc at the end of December. And it is anticipated that arrears will continue to rise.

Every 0.25pc rise in rates adds around €15 to the monthly repayments on every €100,000 borrowed.

Any move by BoI to pass on the higher ECB rate to its variable customers is expected to be replicated by AIB.

A spokesman for AIB would only say that the lender was keeping its rates under review. It had also spared variable rate customers this year's two ECB rate rises.

Anyone with a variable rate will have to be given 30 days' notice by their lender before repayments go up, under new Central Bank rules.

The ECB hiked its main rate by 0.25pc in April, and again by the same percentage last month to take the eurozone lending rate to 1.5pc.

The expectation was that there would be another ECB rise in September. However, ECB president Jean-Claude Trichet and the other members of the governing council have reversed their previous policy and there is now no expectation of a further eurozone rates rise for at least a year.

Rachel Doyle of the Professional Insurance Brokers' Association advised those on variable rates to consider fixing for periods of five years or longer, provided they can get a good value fixed rate.

Most people on variable rates have already been hit by higher rises than those pushed through by the ECB.

Permanent TSB has had three variable rate rises this year with some of its rates for homeowners now over 6pc. EBS also recently hiked its variable rate.

However, both AIB and BoI have so far not passed on this year's two eurozone rate rises to their variable-rate customers.

Some 200,000 homeowners are on some form of variable rate.

Another 200,000 have fixed rates, and are unaffected by any ECB moves.

Every 0.25pc increase in interest rates collectively costs households an extra €335m, figures calculated for the Irish Independent by economist Dermot O'Leary of Goodbody Stockbrokers show.

If interest rates were to stabilise it could help the beleaguered property market.

Mortgage lending is currently at a 40-year low as house prices continue to fall and the prospect of rate rises scare off potential buyers.

Forgiveness

Meanwhile Mr Boucher poured cold water on the chances of his bank taking part in an industry-wide "debt forgiveness" scheme that would allow some struggling homeowners to write off parts of their debts.

AIB had said it was actively discussing a scheme with the Central Bank but that it would have to be a common industry-wide approach.

Asked whether BOI was taking part in the discussions, Mr Boucher said: "We look at what Bank of Ireland does."

The comments came as the bank revealed that it had repossessed 130 homes in the first half of the year, up from 85 repossessed in the first six months of 2010.

Mr Boucher said the figures included 39 owner occupiers -- 34 of those were "voluntary or abandoned".

Borrowers' circumstances are typically reviewed after six months -- Mr Boucher said that 89pc return to full repayments while 11pc "fall into the arrears basket".

Some 4.55pc of BOI's homeowners are now in arrears, against 3.76pc at the end of December.

The figures for buy-to-let investors are worse, with some 7.84pc in arrears at the half year point against 5.91pc six months earlier.

Irish Independent

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