Saturday 25 November 2017

Mortgage rate hikes to reduce incomes by €1.5bn

Charlie Weston Personal Finance Editor

MORTGAGE hikes imposed by lenders and the European Central Bank could reduce household incomes by as much as €1.5bn next year, an Irish Independent survey reveals.

A string of lenders have imposed a succession of mortgage rate hikes this year in a move economists said would sap spending by consumers.

And the mortgage rate rises are in contrast to the rest of the eurozone where home-loan borrowing interest rates are falling.

The ECB yesterday left its current base rate at 1pc for the 15th month in a row, but it is likely to hike its rate next summer.

However, Irish lenders are set to continue hiking rates for standard variable rate customers over the coming months.

An analysis of the effect of mortgage hikes reveals the double rate hikes already introduced by a number of lenders and three rate rises by Permanent TSB could take as much as €1.5bn out of the economy in a full year.

The cost of meeting higher mortgage bills is set to dampen spending by households.

The economy is also being battered by rapidly rising unemployment.

Figures out yesterday showed the Live Register increased the most in a year last month.

The monthly rise of 8,500 took the total claiming benefit to 452,500.

Calculations by Davy economist Rossa White show the increase in interest for households from mortgages and other loans may be €1bn next year, but could be as high as €1.5bn.

The higher cost of servicing debts is disproportionately hitting homeowners with standard variable rate mortgages, mortgage brokers said.

EBS and Bank of Ireland have pushed up standard variable rates for those with residential mortgages twice so far this year. Permanent TSB has increased its standard variable rate three times since last summer. AIB said this week it would raise its variable rate, while KBC Bank and Irish Nationwide are set to follow with rate rises.

Most banks and building societies have now imposed cumulative rises of 1pc on variable mortgage holders.

Lenders have also upped the rates for those who plan to fix their mortgage rate.

"The interest bill for all household debt will go up by about €1bn next year. If rates rise by a full 1pc across all mortgages on average then the interest bill for households will go up by €1.4bn," Mr White said.

His calculations assume the ECB will not increase its rates until the second half of next year. His figures include unsecured debt such as credit cards and loans along with mortgage costs.

KBC Bank economist Austin Hughes said the higher interest costs for households would moderate consumer spending. He said he expected the ECB to increase its rate later next year.


In the rest of the eurozone mortgage rates have been falling since last June.

Figures from the ECB show that variable interest rates across the eurozone have fallen to 2.55pc, down from 3.12pc last year.

And households here are desperately attempting to clear their debts.

Central Bank figures show households repaid €904m in all kinds of loans, including mortgages, in June.

Mortgage brokers said the gap now opening up between the cost of the repayments for those with a tracker compared with those on a standard variable rate was around €160 a month. This is based on a €200,000 mortgage, the Professional Mortgage Brokers Association (PIBA) said.

PIBA's Rachel Doyle said the economy needed a new lender to counter the profiteering of Irish banks and building societies.

The generation of debt, Analysis

Irish Independent

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