Business Property & Mortgages

Thursday 23 November 2017

Mortgage interest rise could affect up to 300,000

David Duffy: AIB boss confirmed the raise
David Duffy: AIB boss confirmed the raise

Charlie Weston Personal Finance Editor

Hundreds of thousands of homeowners are facing more mortgage pain as interest rates are hiked.

AIB, the country's largest bank, is planning a new increase in variable rates, its chief executive has warned.

The move is expected to spark a new round of rises from other lenders, hitting around 300,000 people with variable home loans.

AIB has around 70,000 customers who have variable rates.

Every 0.25pc rise in rates adds €30 a month to the cost of repayments on every €200,000 borrowed.

Experts said a new rise in rates would push up the number of residential customers who are in arrears.

Broker Michael Dowling of Abacus Finance in Dublin said all the lenders were ready to push up variable rates, but each lender was reluctant to be the first to move. Once one goes, others will follow, he warned.

He said banks were anxious to see the average variable rate go from around 4.3pc to 5pc. That could add €1,000 a year to the annual repayments on a €200,000 mortgage.

Mr Dowling said the Government now has a hands-off approach to mortgage rates, despite having put pressure on lenders to reduce variable rates.

Last year, AIB pushed through two rises of 0.5pc each. However, speaking about the imminent rise, AIB boss David Duffy said: "It's not going to be a whole series of raises."

The revelation of more hikes came as promises by AIB to restructure 33,000 distressed mortgages were dismissed as "spin".

Mr Duffy has said the bank would contact all those in arrears and offer them a deal to restructure their repayments by the summer.

But David Hall of the Irish Mortgage Holders Association accused Mr Duffy of engaging in "spin" when the bank said it would do deals with up to 33,000 distressed mortgage holders.

He claimed the bank had offered few, if any, distressed borrowers long-term restructuring such as split mortgages or mortgage-to-rent options.

Asked how many mortgage holders had been offered deals, an AIB spokeswoman said she had no figures at the moment.

The bank, which has been given €21.5bn by the State, claims its variable rate is one of the lowest in the market.

Meanwhile, there was a huge jump in the number of mortgages issued in the last three months of last year. This was mainly due to buyers scrambling to avail of mortgage tax relief, which has since been removed.

Some 6,000 mortgages were drawn down in the October to December period, up from 4,000 in the same three months in 2011.

For all of last year, close to 16,000 mortgages were drawn down, with a total value of €2.6bn. This is the first annual increase since 2006.

There were almost 14,300 mortgages issued in 2011, with a total value of €2.46bn, according to the Irish Banking Federation.

Experts are now predicting that €4bn worth of new mortgages will be issued this year.

Bank of Ireland, AIB and Permanent TSB have committed to ramping up their home-loan lending.

Dermot O'Leary of Goodbody Stockbrokers said AIB and Bank of Ireland alone are committed to issuing €2bn each in mortgages this year.

Irish Independent

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