Thousands face mortgage arrears as rate hikes signalled
Published 17/01/2011 | 05:00
Mortgage costs jumping by €300 a month would be a knockout 'for 85pc of homeowners'
THOUSANDS of mortgage holders could be forced into arrears as a new round of mortgage hikes is set to kick off from next month.
Permanent TSB is to raise its variable rates by 0.5pc from February in a move likely to be followed by its rivals.
It will be the fourth rate rise pushed through by Permanent TSB in just over a year.
Its standard variable rate is set to jump to 4.7pc for existing customers. This will increase monthly repayments by €30 for every €100,000 borrowed.
News of the rate rise comes as research conducted for the Irish Independent indicates that three-quarters of mortgage holders say they will be unable to cope with mortgage rises of €200 or more a month.
Some 45pc of mortgage payers said they would be unable to cope with a €100 hike.
A further 30pc would be unable to make ends meet with an increase of €200 or more, according to the survey by market research company iReach -- on a nationally representative sample of 1,000 adults.
Mortgage costs jumping by €300 or more a month would be a knockout for 85pc of mortgage holders, the research indicates.
Mortgage holders in Dublin and Munster responded that they were slightly less vulnerable than rural homeowners.
Permanent TSB pushed up variable rates three times in the last 14 months, by 0.5pc on each occasion.
The rises came despite the fact that the ECB has left its rate at a record low of 1pc for 20 months in a row.
Some 200,000 homeowners have standard variable rate mortgages, on which banks can hike rates whenever they want.
And there were indications from the ECB last week that it could increase its key rate as early as September -- in a move that would see 400,000 tracker mortgage holders facing hikes.
Last night, Permanent TSB insisted that no decision had been taken to increase variable rates.
But market sources said the lender reviews its mortgage rates at this time every year.
Permanent TSB added that just 80,000 homeowners would be impacted by a rise, insisting most of those on variable rates had long-standing mortgages.
It denied the move would push homeowners over the edge, insisting that 60pc of its borrowers were on trackers.
Chief executive of the Consumers' Association of Ireland, Dermott Jewell, called on the lender to avoid introducing the rate hike, saying it would push thousands of homeowners into arrears.
"They should hold off on this and think about what they are doing. The level of bad debts will be overwhelming if they do this," the head of the independent group said.
The expectation among mortgage experts is that variable rates will rise by around 1pc this year as bust banks try to improve their capital positions.
Frank Conway of the Irish Mortgage Corporation last night said the Permanent TSB rise would add €30 a month to the repayments on every €100,000 borrowed.
He predicted the lender would raise its standard variable rate from 4.2pc to 4.7pc.
Mr Conway criticised the move, claiming that Permanent TSB already had high levels of arrears -- mainly due to the 1.5pc hike imposed on variable-rate mortgage holders over the last 14 months.
He questioned claims by the lender that most customers on its variable rate had largely paid off their mortgages.
Most first-time buyers who took out a mortgage with the lender since 2008 had a variable rate, as trackers were withdrawn.
"Permanent TSB has higher-than-average arrears and this will feed into its arrears issue. This will also impact first-time buyers who bought since 2008."
Some 70,000 homeowners are struggling to pay their mortgages, according to Central Bank figures, including up of 40,000 people who have not made a payment for three months or more, and 30,000 making interest-only payments.
The 70,000 figure includes around 12,000 homeowners who have not made any payments for a year or more.
Renewed efforts by lenders to hike mortgage rates come as income tax hikes, including the new universal social charge, impact heavily on workers from this month.
A family on €55,000 will be €1,250 worse off from the income tax changes alone.
In addition, around 1.3 million members of the VHI are also facing hikes of between 15pc and 45pc in the cost of their private medical insurance.
And Bank of Ireland is set to make it more difficult for its 1.2 million current account holders to avail of free banking from next month.