Saturday 3 December 2016

Interest rate rises hammering households

Charlie Weston, Personal Finance Editor

Published 21/07/2011 | 05:00

Every 0.25pc increase in interest rates costs households an extra €335m. Picture posed. Getty Images
Every 0.25pc increase in interest rates costs households an extra €335m. Picture posed. Getty Images

INTEREST rate rises are sucking millions of euro out of the economy, new figures show.

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

This week, Permanent TSB said it was hiking its mortgage rates while AIB increased in overdraft and personal loan rates.

Mr O'Leary based his figures on total debts of €134bn for households, which includes mortgages, personal loans and card debt. He has also included buy-to-let investments.

The European Central Bank has increased rates twice this year -- in April and earlier this month. These were passed on to around 400,000 homeowners who have tracker mortgages.

Most lenders also passed on the rate rises to those with variable-rate mortgages, with the exception of Bank of Ireland and AIB, which have yet to pass on either of the last two ECB increases.

Permanent TSB has increased its variable rates for the third time this year in a move that has seen some of its mortgage costs top 6pc for the first time in three years.

The move by PTSB to impose a third increase will mean that monthly costs have risen this year by almost €100 a month for every €100,000 borrowed.

Irish borrowers are more vulnerable to rate changes than their counterparts in France or Germany as around eight out of 10 mortgages here, and a large chunk of loans, are on some form of variable rate.

Mr O'Leary said he expected another three ECB rate rises by the end of next year. He predicts one more this year and two next year to lift the eurozone rate from 1.5pc at present to 2.25pc.

Three rate rises this year would lead to €1bn being taken out of the spending of households.

If the banks were properly functioning, the economy would be able to absorb further rate rises, but the lack of availability of credit for businesses and house buyers was hampering a recovery, Mr O'Leary said.

AIB piled on the pressure on hard-pressed customers on Tuesday when it said it was increasing its overdraft and personal loan rates.

The move came as the EU called on banks to come clean on the fees they charge customers or face new rules forcing them to be transparent.

The interest rate on an AIB overdraft will now rise by 0.25pc to 12.7pc, with another 12pc charged on top of this for unauthorised overdrafts.

The move to raise the cost for consumers of going into the red is despite the Central Bank conducting a probe into overdraft charges at all banks.

Borrowing €3,500 over a year will now rise by 0.25pc to 14.46pc as the bank passes on the European Central Bank rise in eurozone interest rates announced earlier this month.

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