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More mortgage misery: interest to climb again as banks start to pass on costs

Standard variable rate mortgage going to 3.5pc, with price of trackers and new fixed rate loans also going up after ECB’s latest move

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Christine Lagarde

Christine Lagarde

Christine Lagarde

MORTGAGE interest rates could soar towards 4pc this summer as Irish banks start to pass on the cost to more types of customers.

AIB is introducing rate increases across all mortgage types for the first time since the European Central Bank ( ECB) began its rate-raising cycle last July, in a move that will affect hundreds of thousands of borrowers.

In a boost to savers, however, the bank is also lifting the rates it pays on deposits.

The move came just hours after the ECB announced its latest rate rise of 0.5pc, bringing the total increase in rates since last summer to 3pc.

AIB said it will increase rates by an average of 0.5pc across all tracker and fixed mortgages, with new fixed prices effective from today. Fixed and tracker mortgage rates for customers of the bank’s Haven brand will also go up.

Now a five-year fixed-rate mortgage will cost 4.3pc a year, while variable rates are going up 0.35pc from March 14. That means a variable-rate mortgage with an 80pc loan-to-value ratio will have a 3.5pc rate.

The quick action by AIB is a sign Irish banks are starting to pass on the cost of higher base rates to mortgage customers after largely holding back.

Michael Dowling, managing director of Dowling Financial, said: “It is significant also as this is the first ‘pillar’ bank to increase its variable as well as its fixed rates.”

AIB, Bank of Ireland and Permanent TSB have spared their variable-rate customers up to now, despite the ECB having raised rates four times in the six months to last December, and have only passed through some of the hikes to fixed products.

ECB president Christine Lagarde was asked if next month’s rate rise would be the last. “No, no, no, no, no,” she said. We know that we have ground to cover. We know that we are not done.”

Further hikes are in store if core inflation does not come down from the record high of 5.2pc it reached in December and which stuck in last month.

Industry group Brokers Ireland criticised the ECB for not saying where and when rate hikes were “going to end”.

Five successive hikes have added up to €400 a month to a €330,000 mortgage, with a further rise next month to add €88 more.


However, the public finances are off to a strong start. Last month, the State’s income was boosted by €800m of tax paid compared with the same month last year as well as €300m from the sale of AIB shares. The Exchequer surplus of €2.8bn will heap pressure on the Government to do more to help hard-pressed households.

There is unlikely to be relief from the increased mortgage costs for many months to come.

However, AIB is making its changes amid an improving economic outlook of declining inflation, low unemployment and improving growth indicators.

The changes put AIB’s prices above Bank of Ireland, which has said it would “keep all rates under ongoing review” after confirming those on tracker mortgages would pay more from February 22.

Bank of Ireland has been slower to increase mortgage rates in a bid to take market share.

However, bank shareholders have been agitating for higher prices as the average rate being charged in the Irish market was among the lowest in Europe, after many years of having been the most expensive.


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