Saturday 10 December 2016

Thousands face bigger mortgage rate hikes

Fears lenders will push up variable loans by more than ECB increase

Charlie Weston, Laura Noonan and Aideen Sheehan

Published 08/04/2011 | 05:00

BANKS will use the cover of a European Central Bank rate rise yesterday to push up the cost of variable mortgage rates, it was predicted last night.

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The forecast came as the ECB confirmed its first rate rise in two years, piling massive pressure on household budgets.

And another three hikes are expected by end of the year.

The pain for those on tracker mortgages will be limited in line with ECB rate increases.

But hundreds of thousands of customers on standard variable homeloans will be at the mercy of whatever increases the banks decide to impose. Head of the Irish Brokers Association Ciaran Phelan said those on standard variable rates will be subject to higher increases than yesterday's 0.25pc ECB rise "as the banks use this opportunity to further boost their margins on these customers".

The ECB move means around 400,000 tracker mortgage-holders now face rises from next Wednesday, with monthly repayments on a €300,000 loan going up by €45.

The mortgage hikes come as new inflation figures yesterday revealed soaring mortgage costs and fuel increases are putting an increasing strain on household incomes.

Inflation is now rising at the fastest rate in three years -- and that's before banks pass on yesterday's ECB interest rate hike.

Families have been hit with a raft of crippling increases in mortgage repayments, fuel and health costs at a time when incomes are already being squeezed by unemployment, wage cuts and higher taxes.

Tracker and variable rates will rise as a result of the hike.

Shortly after the ECB confirmed the increase, Bank of Ireland and its subsidiary ICS controversially announced fixed mortgage interest rates as high as 6pc. This means a homeowner with a €300,000 mortgage will be faced with additional €180 a month in repayments to fix for five years when the changes come into effect from next Friday.

The crippling hike is among a raft of 40 different fixed rate rises announced by Bank of Ireland yesterday. AIB hiked its fixed rates by 1pc last month.

ECB president Jean-Claude Trichet yesterday insisted no decision had been made on whether yesterday's rate rise marked the start of a series of hikes over the coming months.

Markets

But money markets have priced in three more ECB rises by the start of next year

"ECB rates could be 2pc by the end of the year," KBC Bank economist Austin Hughes told the Irish Independent.

Three more rises on top of yesterday's by the start of next year would push up the monthly repayments on every €100,000 borrowed by €60, with the next rise likely in June or July. People on existing fixed-rate deals will be unaffected by yesterday's announcements.

Banks and building societies said tracker rate customers will see their mortgage rates rise from next week.

Lenders said they were yet to decide on what percentage of the ECB rise would be passed on to customers with standard variable mortgages.

New Central Bank rules state lenders must give homeowners one month's notice before changing variable rates.

Irish Nationwide said last week its variable rate will rise 0.6pc on May 1. Around 400,000 people have trackers, with 200,000 on variable rates.

Irish Independent

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