Fixed rate mortgages axed as 1pc hike bites
80,000 are hit amid fears of further rises
Published 04/02/2011 | 05:00
THE country's largest mortgage provider is abolishing fixed rate homeloans -- leaving customers with no escape from future interest rate increases.
Permanent TSB will today announce it is withdrawing the option for mortgage holders of being able to fix their rate, the Irish Independent has learned.
Those on fixed rates now will not be affected. The bank will also confirm it will increase its main variable rate by 1pc, as revealed in this newspaper earlier this week.
This means the bank's 80,000 customers on standard variable rates will have no option but to accept the rate hike.
Other lenders are set to follow suit in what is seen as the death of fixed rates -- just as hard-pressed homeowners face the squeeze of European interest rates also rising.
Permanent TSB also last night confirmed it is to lay off 280 of its 1,800 staff, after it briefed bank managers at a meeting in Dublin.
At the same time the European Central Bank (ECB) signalled it was worried about rising prices in the eurozone and may increase its main lending rate by the autumn.
Comments from ECB president Jean-Claude Trichet indicate there could be a rate rise as early as September.
And KBC Bank economist Austin Hughes predicted another 0.25pc rise in December.
A rise in the main ECB rate would affect 400,000 who have tracker mortgages, while the rate rise would also be passed on by lenders to the 200,000 who have standard variable rate mortgages.
Permanent TSB has stopped offering its mortgage holders the option of a fixed rate from today.
The bank may reintroduce fixed rates at a later date, but they are set to be priced so high that they would not be a option for mortgage holders. Those on existing fixed rates with Permanent TSB will not be impacted by the move.
Fixed rate offers are typically priced above current standard variable rates by lenders, but offer the certainty of locked-in repayment levels for their duration, even if variable rates increase.
Mortgage experts last night predicted fixed rates would now go the way of tracker rate mortgages. Most lenders stopped issuing new trackers in 2008.
"Fixed rates will be pulled from the market or priced so high that they will not be a realistic option. This will leave people at the mercy of their banks," financial adviser Karl Deeter of Irish Mortgage Brokers told the Irish Independent.
Mr Deeter also predicted other lenders would now withdraw fixed rates as banks continue to lose money on mortgages because they signed up thousands of people on trackers which they are now losing money on.
Some lenders offer fixed rates below 4pc, but swap rates (the wholesale market rate) for banks range from 7pc for two years to 11pc over five years. Only around 200,000 people have fixed rate mortgages. Ireland is unusual compared with other EU countries in having such small percentages with fixed rates.
The move by Permanent TSB to hike its variable rate from 4.19pc to 5.19pc with effect from the end of the month will add €60 a month to the repayments on every €100,000 borrowed.
This is set to be the highest variable rate seen in this market for around three years.
The National Consumer Agency (NCA), which is a state body, said the move to hike variable rates by 1pc was "an extremely high increase that will have a significant impact on repayments".
It advised anyone who has a variable rate to see if they could cope with interest rates going up by 2pc. They should then compare this with fixed rates available to them.
NCA chief executive Ann Fitzgerald also cautioned those with tracker mortgages not to switch to a fixed rate.
She rejected allegations tracker mortgage holders were being unfairly cross subsidised by those with variable rates.
"While variable rate mortgages are, by their nature, less certain, we are extremely concerned about the impact that increases would have on consumers, some of whom may be in danger of falling into arrears, or in arrears already," she said.