Mortgage holders 'face six rate hikes in a row'
Published 17/02/2011 | 05:00
Homeowners with both variable and tracker mortgages have been warned that European Central Bank (ECB) interest rates will rise between five and six times by the end of 2012.
The warning comes as a second lender is to stop offering its mortgage customers the option of fixing their monthly repayments as the home-loan squeeze intensifies.
EBS and its subsidiary Haven have pulled fixed-rate mortgage offerings for both new and existing customers.
The building society, which is effectively owned by the State, said the move was temporary and reflected the high cost of funds on international markets.
The move follows Permanent TSB's announcement last week that it was effectively withdrawing fixed rates. Other lenders are now also expected to suspend fixed rates, leaving homeowners at the mercy of their lenders.
There were warnings yesterday that there could be up to six increases in ECB rates by the end of 2012. A rise in ECB rates will hit those on both trackers and standard variable rates.
Ulster Bank economist Simon Barry said European Central Bank rates would rise by 1.5pc from their current rate of 1pc.
Increases of 0.25pc each quarter were likely from the latter part of this year and through next year, he said.
ECB rates going up by 1.5pc to 2.5pc would add around €150 to the monthly repayments on every €100,000 borrowed on a tracker. Money markets had priced in an ECB rate rise as early as September, Mr Barry said.
Increases in ECB rates will push up tracker mortgage costs as they are priced at a fixed percentage over the ECB rate and can only rise when ECB rates rise. And higher ECB rates will be passed on to those with standard variable rate mortgages.
Some 400,000 homeowners have tracker rates, while around 200,000 people are on variable rates. Another 200,000 mortgage-holders are locked into fixed rates.
The pressure on household finances has been brought into sharp focus by research showing that half of the adults surveyed feel they will be worse off this time next year.
A higher proportion of those in their late 30s and their 40s expect to be worse off, the Irish Independent/Millward Brown Lansdowne research shows.
At least three more years of austerity are on the way, no matter who wins the election, as part of the €85bn IMF/ECB bailout.
Operations director of Irish Mortgage Brokers Karl Deeter said the EBS and Haven moves on fixed rates would be followed by other lenders. He said lenders would also continue to push up variable rates.
"Discontinuing fixed rates within a week of hiking rates spells it out loud and clear -- the majority of those on the EBS book are going to be in for painful rate hikes," he said.
Last week, Permanent TSB said it would withdraw the option of fixing for the majority of its customers.
A small number of customers who are at the end of a fixed rate or have finished an introductory discount offer have a clause in their contract that states they must be offered a new fixed rate after their current fixed period ends.
They will be offered 8.75pc if they want to fix for five years -- an increase of 3pc from the most recent rate offered.