Mortgage costs up as banks defy low
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MORTGAGE costs jumped by up to €1,500 in the past year for hundreds of thousands of homeowners despite the European Central Bank rate remaining at a record low.
The revelation comes as the ECB again left interest rates at its current low level of 1pc yesterday.
It was the 14th month in a row that the ECB's key rate has been unchanged. But, despite this, Irish consumers have been hit with a stream of higher mortgage rates imposed by the banks.
And lenders are set to continue to defy the ECB by again hiking interest rates on mortgages.
Opposition politicians and consumer watchdogs last night said hard-pressed householders were being fleeced by banks pushing up mortgage costs.
A breakdown of the inflation figures from the Central Statistics Office (CSO) reveals mortgage interest costs shot up by 16.5pc in the past year.
The CSO only looks at changes to standard variable mortgage rates.
Up to 400,000 people who have tracker mortgages have escaped the rises as lenders can only raise their rates when the ECB moves its main rate.
But another 300,000 people who have standard variable rates have not been so lucky.
Most banks have pushed up their standard variable rates by 0.5pc since the start of the year, but Permanent TSB increased its standard rate twice in the past 12 months.
A typical family that bought a house in the past decade and borrowed €300,000 from Permanent TSB would have seen their mortgage costs jump by €1,500 in the past 12 months, according to calculations by Frank Conway of the Irish Mortgage Corporation.
This works out at a rise of 13pc, less than the 16.5pc recorded by the CSO.
Those who have opted to fix their mortgage rate in the past year have also been hit as most lenders are now charging more than they did a year ago for those who want to lock in.
Struggling mortgage holders who have been forced to do a deal with their lender to only pay the interest on their mortgage, and not repay any of the capital in the short term, are also being hit by the higher interest rates imposed by banks and building societies.
As many as 100,000 homeowners are thought to be in difficulties with their mortgages.
This is made up of 32,000 who are in arrears and another 70,000 or so who have gone to their lender to renegotiate their monthly repayments.
And mortgage experts warned more hikes are in store for those on standard variable rates by the end of the summer.
Karl Deeter of Irish Mortgage Brokers expects variable rates to rise by another 0.5pc by the end of the year. The cost of fixing will also go up.
"Banks and building societies are being impacted by people who are not able to pay their mortgages and by the higher costs banks have to pay for money, and they need to negate the losses they are making on trackers," he told the Irish Independent.
Fine Gael finance spokesman Michael Noonan accused Irish banks of ignoring the ECB as they hiked up mortgage rates.
"It's bad enough that the Government's new plans for struggling mortgage holders have been a massive disappointment. Now the latest inflation figures from the CSO confirm that banks are turning the screw even tighter on hard-pressed households."
Experts warned consumers will be hit by the closure and merger of smaller lenders.
Rachel Doyle, director of PIBA Mortgage Services, said: "There is also much speculation in the market around lenders merging, which would further narrow competition."
The futures of EBS and Irish Nationwide building societies are uncertain.
Consumer watchdogs last night warned the loan hikes were putting a growing number of householders under serious financial pressure.
"Consumers are looking at those figures from the ECB and the CSO and they know they are paying for the big mistakes made by the top people in the banks -- and they will pay more in the coming years as well," Consumers' Association of Ireland chairman James Doorley told the Irish Independent.
"The average consumer on a variable rate mortgage has been hammered over the past year or two and is likely to be hammered even more over the next year or two."
Comment: Page 25
- Charlie Weston Personal Finance Editor
Irish Independent
