Thursday 25 May 2017

Irish market is highly at risk from mortgage rate rises - Boucher

BoI CEO Richie Boucher
BoI CEO Richie Boucher
Donal O'Donovan

Donal O'Donovan

The Irish market is "highly vulnerable" to an interest rate rise because of the high numbers of variable rate home loans here, including trackers, the head of Bank of Ireland has warned.

The bank has "stress tested" itself and has the financial strength to deal with even a "rapid rise in interest rates", Richie Boucher said.

The head of Ulster Bank also said yesterday that it's prepared if rates rise sharply.

But Bank of Ireland's Mr Boucher warned that rate increases are likely as the economy recovers.

"Interest rates are at abnormally low levels," he said. "The market is vulnerable."

Variable rate mortgages, where borrowing costs rise and fall with official interest rates, have long been the norm in Ireland.

Since the financial crisis Bank of Ireland has increasingly prodded customers to shift to fixed term mortgages, through its pricing policies.

Mr Boucher said 75pc of new borrowers with the bank are taking out fixed rate loans.

"We don't take on interest rate risk as a bank, we cut it out wherever we can," he said.

He was responding to reports from Germany in particular, where pressure to lift interest rates from crash era lows is building as inflation picks up.

This week the powerful head of the German Central Bank said that improving economic conditions could justify a hike in the European Central Bank interest rates over the next two years.

Its raised fears that the 350,000 mortgage borrowers here with tracker loans are vulnerable if their borrowing rise sharply.

Bundesbank President Jens Weidmann said on Thursday that economic conditions, including rising inflation in Germany, could now justify more normalisation of interest rates by 2019.

Any sudden spike in borrowing costs will raise fears of renewed pressure on households, still loaded down with boom-era debt, and many still in negative equity.

Bank of Ireland's tracker mortgage customers are paying average interest rates of just 1pc the banks chief financial officer Andrew Keating told reporters yesterday. If rates were to rise at a rapid pace that would be an issue for borrowers, he said.

However, the bank has not issued now tracker mortgages since 2008, when interest rates were 3pc to 4pc for the same borrowers.

In the meantime most borrowers have had eight to nine years of capital repayments, lowering their overall mortgages, he said.

Ulster Bank CEO Gerry Mallon said yesterday that a rise in interest rates is generally a sign of growth.

While it was difficult to fully assess the potential impact on customers, he said Ulster Bank was confident that it holds enough capital; "to deal with what ever kinds of shocks come our way".

Interest rates have not increased in the Euro area since 2011, and two increases that year were reversed within months.

Irish Independent

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