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Homeowners warned that mortgage rates likely to rise

HOMEOWNERS were last night warned that banks and building societies are set to hike mortgage rates, starting as early as March.

The move would hit the thousands of people with standard variable rates, as lenders are free to increase these mortgage rates irrespective of what the European Central Bank (ECB) does.

People with standard rate mortgages should lock in to a fixed rate, as these rates are at historically low levels, a report by Karl Deeter of Irish Mortgage Brokers, advises.

Under-pressure lenders will push up standard variable rates by as much as 1pc this year, and another 0.5pc next year, Mr Deeter said.

"This will apply to existing variable-rate holders and not only to new business applicants. It is just a question of who will move first," the report states.

Some eight out of 10 mortgages in the Irish market are either standard variable or tracker mortgages.

There is no breakdown available of the numbers of each, but it is estimated that up to 250,000 homeowners have standard variable rates. Trackers can only rise when the ECB rate changes.

Last summer, Permanent TSB was heavily criticised when it raised the rates by 0.25pc for its existing standard variable-rate customers. The move impacted 50,000 customers.

Other banks, including AIB and Bank of Ireland, were thought to be preparing to hike their rates at the time but held back following the criticism of Permanent TSB.

The Irish Mortgage Brokers' report warned that there could be pain for those with tracker rates as well this year.

Tracker mortgage rates only move when the ECB changes its rates, but Mr Deeter has warned that a rate rise could come as soon as the end of the summer, with a 0.5pc rise likely.


But Mr Deeter said banks and building societies would be forced to push up mortgage rates for existing standard-rate customers ahead of any ECB change because they were losing money on mortgages.

"There are already foreign-owned banks with variable rates in excess of 5pc and 6pc. For indigenous banks to be in the market as low as 2.25pc is ridiculous," Mr Deeter said.

Ulster Bank has a variable rate of 5pc and Bank of Scotland (Ireland) has a 6pc rate, with AIB charging as low as 2.25pc.

Mr Deeter advised anyone with a standard variable rate to lock in to a fixed rate.

"We believe there is a small window of opportunity on the fixed rate front that we will not see recurring for many years," he said in the report.

The report also calls for a mortgage rescue scheme to be introduced, warning that higher interest rates could lead to homeowners struggling to meet repayments and a further implosion of the housing market.

Mr Deeter warned that Bank of Ireland and AIB come to the end of the one-year moratorium on repossessions next month.

Meanwhile, the Professional Insurance Brokers Association said that the ECB may not raise rates immediately, but this will not stop lenders from attempting to increase rates.

Rachel Doyle of PIBA said: "Mortgage holders would be well advised to consider fixing for periods of five years or longer. Fixing at a good rate for longer terms gives security and enables better planning."

Irish Independent