Friday 2 December 2016

Mortgage rate will rise to 5pc, predicts expert

Charlie Weston Personal Finance Editor

Published 30/11/2010 | 05:00

Variable rate mortgages are set to rise by at least 1pc next year. Photo: Getty Images
Variable rate mortgages are set to rise by at least 1pc next year. Photo: Getty Images

VARIABLE rate mortgages are set to rise by at least 1pc next year to an average of 5pc, the financial expert who correctly predicted this year's increases warned last night.

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Karl Deeter of Irish Mortgage Brokers produced a report in 2009 pointing out that standard variable rate mortgages would rise this year by 1pc.

Most lenders duly pushed up rates by that amount, with Permanent TSB imposing three rises in a 12-month period.

Banks can increase standard variable rates at any time, unlike trackers which can only rise if the European Central Bank rate rises.

The average standard variable rate in the mortgage market here is now between 3.5pc and 4pc, but this will hit 5pc next year, Mr Deeter said.

Some 200,000 homeowners have standard variable rate mortgages.

Banks and building societies will be forced to charge more for variable rates because of the €85bn bailout for the State.

Some €35bn of this money is going into the domestic banks, but the interest rate on this money is higher than emergency money provided to the banks by the European Central Banks up to now.

This means costs will rise for banks, forcing them to pass on their higher costs to variable rate mortgage holders. Banks are unable to pass on higher lending costs to tracker rate customers.

Mr Deeter said he was laughed at when he predicted a strong rise in variable rates for this year.

"I was the first one to say that variable rates would rise this year. I was laughed at then, but there is nobody laughing now."

A number of lenders, including Bank of Ireland, have said they do not plan further rises in 2010. But they did not rule them out next year.

Irish Brokers Association chief executive Ciaran Phelan said banks and building societies should reduce their costs before hitting homeowners.

"With the taxpayer now firmly locked into recapitalisation of the banks, many hard-pressed mortgage holders are literally at the mercy of the banks that are free to increase variable interest rates yet again.

"The banks should first look to reduce their huge overheads before tapping their customers for additional funds."

Warned

Irish Mortgage Corporation director Frank Conway also warned that standard variable rates were set to rise in the next few months.

"The banks have already indicated that they are not quite finished with variable rate rises," he said.

This despite the fact that some 70,000 homeowners are struggling to repay their mortgages.

Irish Independent

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