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New rate hikes will push homeowners 'over the edge'

A SPATE of new home-loan increases will push many struggling homeowners "over the edge", mortgage experts warned last night.

Permanent TSB, one of the country's biggest mortgage lenders and one of the six banks guaranteed by the State, yesterday confirmed that its standard variable customers would be hit with another 0.5pc hike from August 3. The increase will add almost €70 a month to a mortgage of €250,000.

And more homeowners will feel the brunt of a wave of fresh mortgage hikes as a string of lenders prepare to increase their variable rates for the second time before the end of next month.

"This Permanent TSB increase will push many households over the edge," Karl Deeter of Irish Mortgage Brokers told the Irish Independent.

"A year of tax increases, wage cuts and now three rate hikes totalling 1.5pc will be what finally breaks the finances of many families."

The European Central Bank (ECB), which has frozen rates for the past 14 months, is also set to begin increasing its key rate from the middle of next year. Even those on tracker mortgages will be hit.

Fears were also growing last night that the ECB will move to push up interest rates sooner than expected after a key measure of business confidence in Germany, the IFO index, recorded the strongest rise for 20 years.

Now, a number of economists are predicting an ECB rate rise as early as the middle of next year. Most economists see the ECB imposing two 0.25pc rises in 2011.

However, the State's leading economic think-tank, the Economic and Social Research Institute, has predicted three eurozone interest-rate rises next year, which would raise the base ECB rate to 1.75pc.

The Permanent TSB third variable rate hike will directly affect 80,000 homeowners. It comes a week after EBS and its broker-focused division Haven increased its standard variable rates by 0.6pc.

Permanent TSB's variable rate rise has risen from 2pc to 4.19pc, adding €28 to the monthly repayments for every €100,000 borrowed.

The bank was the first lender to raise standard variable interest rates last summer. It increased them by a further 0.5pc in February.


Its third hike will affect around 38pc of the bank's residential mortgage customers. Those on fixed or tracker mortgages will not be hit.

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Chief executive David Guinane said the bank regretted having to take the decision, but added that the increase reflected the high costs of funds for the banks.

Other lenders are preparing to hike their variable rates for the second time.

Up to 300,000 people will be hit by the standard rate increases before the end of August.

The ECB has kept its key rate at a record low of 1pc for 14 months in a row in a bid to aid the faltering 16 economies that make up the currency zone.

Homeowners with tracker mortgages have been the big winners, with some people paying as little as 1.5pc on their mortgages.

But a string of figures from the larger eurozone economies in the past few days have prompted a number of commentators to predict up to three rises next year.

Bloxham Stockbrokers economist Alan McQuaid said that he expected the ECB to push up rates from autumn of next year.

Meanwhile, both Bank of Ireland and AIB have passed European-wide stress tests carried out in order to establish how resilient they would be in the face of difficult economic circumstances.

Ninety-one banks across Europe were subjected to the test by the Committee of European Banking Supervisors. A total of seven failed.

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