Tuesday 22 October 2019

Permanent TSB plans hike in variable home loan rates

Joe Brennan and Charlie Weston

HOMEOWNERS with variable rate mortgages are in for a shock as one of the largest lenders in the market, Permanent TSB, is poised to hike its standard variable rate for existing home loan customers.

The move is likely to be followed by other lenders in the Irish market, despite the fact that there are no indications that the European Central Bank is planning to raise its rates any time soon.

Mortgage experts said the cost of variable rate mortgages have never before been increased for existing customers in this market.

Sources indicated yesterday that Permanent TSB was poised to raise its standard variable rates for existing mortgage customers by as much as 0.75 percentage points next week -- erasing the effect of three typical recent rate cuts from the European Central Bank.

Sources

Industry sources said that other State-guaranteed banks, such as Allied Irish Banks, Bank of Ireland and EBS Building Society, were likely to let Permanent TSB take the political and public heat before following suit with rate increases.

But there is a growing acceptance in the Department of Finance that Irish banks will have to improve their margins, which are among the lowest in Europe, in order to improve their profitability and absorb mounting losses on bad loans.

A raft of analysts have lowered their operating profit forecasts for the publicly-quoted domestic banks after Bank of Ireland's alert two week's ago that its lending margins are under "significant" pressure.

It highlighted that it was being squeezed by greater competition for deposits and higher funding costs.

Permanent TSB, a unit of Irish Life & Permanent, declined to comment on its plans to hike its standard variable rates.

Any move on standard variable rates will not impact on those with trackers.

However, a spokesman said: "We continually monitor rates. And margins are being impacted because the costs of funds are so high."

It is understood the lender is also considering increasing rates by a further 0.25 percentage points -- or 25 basis points -- in a month or two, depending on whether other lenders have moved to catch up.

Pressure

The covered institutions have all been under significant pressure to pass on ECB interest rate cuts to mortgage customers.

However, a divergence has emerged between the rates offered between the local and foreign-owned banks, who have been more reluctant to pass on rate decreases.

Marketing director of the Irish Mortgage Corporation, Frank Conway, said: "If this happens it will be the first time standard variable rates have increased for existing customers."

He said the implications for a move to hike rates for existing customers would be huge for household budgets.

"This will hit ordinary homeowners. It will mean mortgage rates will be moving in a completely different direction to the ECB. It sends a signal that banks have the power to move standard variable rates as they see fit," he added.

Mr Conway added that Permanent TSB's borrower rates have been higher than other domestic lenders in the market for a few months now, and an increase in existing variable rates would further punish its customers.

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