Friday 23 February 2018

Interest rate hike put on hold

Japan crisis means ECB likely to delay increase until early summer

Charlie Weston Personal Finance Editor

HOPES were raised last night that homeowners could be spared a European Central Bank rate hike next month because of the economic impact of the devastating earthquake in Japan.

However, lenders continued yesterday to shut off the option for mortgage holders of fixing, leaving them at the mercy of rate increases.

Economist at NCB Stockbrokers, Brian Devine, said the dampening impact on the global economy from the events in Japan meant the ECB was not now likely to go ahead with a rate rise in April.

Earlier this month ECB president Jean-Claude Trichet had indicted that an increase in eurozone rates was likely to be announced on April 7.

A rise in eurozone rates will hit 400,000 homeowners who have tracker mortgages, as well as the 200,000 with variable rates.

Mr Devine said he still expected the ECB to push up interest rates this year, but it was likely now to hold off until May or June.

As many as three increases in eurozone rates are expected this year.

Yesterday AIB, one of the largest mortgage lenders in the State, pushed up its fixed rates by 1pc. The new AIB rates took effect from today.

And Bank of Ireland (BoI) is now set to follow suit.

The AIB move will make it up to €166 a month more expensive for someone with a €300,000 mortgage to fix for five years, compared with the five-year rate on offer earlier in the week.

AIB's three-year rate has jumped from 3.89pc to 4.88pc, while the five-year rate goes from 4.39pc to 5.35pc.

The variable rate, which is 3.25pc, remains unchanged.

Around a third of AIB's residential mortgage holders are on variable rates.

Mortgage brokers said the low variable rate compared to much higher fixed rates meant households would have little choice but to stay on variable rates, leaving them exposed to ECB hikes and unilateral rises by AIB.

The move will not affect those on existing fixed-rate deals. But it will affect AIB's mortgage borrowers who are on variable rates and those who have come to the end of a fixed rate, and want to fix. First-time buyers will also find it more expensive if they choose to fix.

And it emerged yesterday that National Irish Bank hiked its fixed rates by up to 0.4pc in the past few days.

NIB's five-year rate went up 0.3pc to 4.9pc, but it said it had no plans to increase its variable rate.

Already Ulster Bank and KBC Bank have increased their fixed rates. Permanent TSB, EBS and Irish Nationwide have gone further and shut off the option of their customers fixing.

Yesterday, mortgage experts said BoI was set to hike its fixed rates in days. "Bank of Ireland will follow this with similar increases," Karl Deeter, of Irish Mortgage Brokers, said.

And Mr Deeter criticised the fact that homeowners did not receive any warning about AIB's move to push up its rates.

AIB also hit buy-to-let investors seeking to control their repayments. It increased its fixed rates by around 1pc also, with the five-year rate jumping to 6.35pc.

Irish Independent

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