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Banks urged to spare variable-rate customers from ECB’s rate rise

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Lenders have been called on to absorb this week’s European interest rate rise instead of passing it on to variable-rate mortgage holders.

About 200,000 homeowners with variable-rate mortgages are set to face a huge increase in home-loan costs when the European Central Bank ( ECB) embarks on a succession of rate rises, the first for 11 years.

Variable rates are some of the highest in the market, with some being as high as 4.5pc.

The ECB rate-rise announcement is due on Thursday.

A string of increases could add €1,200 a year to the cost of servicing a variable-rate mortgage.

Tracker holders will see automatic increases implemented, but banks and other lenders have discretion on whether to push up variable rates.

And the length of time it is taking for first-time buyers and switchers to get mortgage approval and then draw down a home loan is causing huge uncertainty.

The fear is that many lenders will have increased their fixed and other rates by the time the mortgages are drawn down.

The rate borrowers end up paying is the one that applies when they draw down the mortgage.

But it is taking up to three months to get approval for a mortgage and draw it down due to enormous demand from switchers and new borrowers.

Chairman of the Consumers Association, Michael Kilcoyne, called on all lenders to copy Permanent TSB and commit to absorbing the first two ECB rate hikes.

Permanent TSB chief executive Eamonn Crowley said last month his bank may absorb the first two rounds of ECB interest rate hikes and not increase variable-rate mortgage pricing in a bid to grow its market share.

Mr Crowley said Irish banks “can withstand for a portion of time some of those interest rate increases”.

Two rises of 0.25pc have been indicated, but a rise of 0.5pc in September could be implemented if high inflation persists. This is likely to affect about 450,000 people who have a tracker or variable rate.

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Each 0.25pc rise in the ECB rates will cost €30 more in monthly repayments for a €250,000 tracker mortgage. ECB rates going up by 0.75pc would add €1,200 to the annual repayments on such a mortgage.

Mr Kilcoyne said: “The banks can well afford not to pass on the ECB rise for variable rate customers. The taxpayers bailed them out when they were in difficulty and we got very little thanks for that.”

Martina Hennessy of broker Doddl.ie said a huge backlog of people attempting to switch their mortgage provider to a lower cost one had built up.

It is taking about five weeks to get approval for a mortgage switch despite regulatory rules saying applicants should be able to get mortgage approval in 10 days.

Lenders ICS Mortgages, Avant Money and Finance Ireland have increased some of their rates in recent months, but Permanent TSB, Bank of Ireland and EBS all reduced some of their mortgage rates.


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