Saturday 16 December 2017

Rates to rise for homeowners here in spite of 1pc ECB freeze

Charlie Weston Personal Finance Editor

THE European Central Bank yesterday left its key interest rate steady at 1pc -- but mortgage rates for Irish customers are set to increase regardless.

ECB governors could now wait until the end of this year or early next year before they push up the eurozone rate, economist Alan McQuaid said.

But he warned that once European rates start to rise, they will eventually reach 4pc over the next two to three years.

Before that happens, banks and building societies here will have pushed up rates on standard-variable and fixed-rate mortgages, Mr McQuaid added.

AIB warned on Tuesday that it planned to raise rates by 0.5pc before the summer. The move is set to spark copycat rises across the banking sector.

Lenders are free to move standard-variable and fixed rates when they want, but can only increase tracker rates when the ECB moves.

A 0.5pc increase in standard-variable rates will add around €65 a month to repayments on a typical €250,000 home loan over 25 years. But it will cost mortgage holders up to €15,000 in additional interest payments over the course of the loan.

Bank of Ireland and the EBS are understood to be weeks away from increasing their standard-variable rates.

Last month, Permanent TSB hiked its rates for existing standard-variable rate customers.

But Bloxham's Alan McQuaid said the ECB was months away from increasing its main rate.

"It could be September or October at the earliest, when ECB rates go up. However, I wouldn't be surprised if it waits until 2011."

Once ECB rates begin to rise, they will go up steadily until they reach between 3pc and 4pc over the next two to three years, he added.

But for the moment, the financial troubles being experienced by Greece will make the ECB reluctant to push up interest rates.

Austin Hughes of KBC Bank said any recovery in the eurozone was weak and he therefore did not expect rates to rise until early in 2011.

Fine Gael has said banks here had no excuse for raising interest rates after the ECB left its rates unchanged.


Pointing out that the rate at which banks are lending to each other has fallen over the past year, the party's deputy finance spokesman, Kieran O'Donnell, said Finance Minister Brian Lenihan must tell the banks they have no excuse to penalise mortgage holders, many of whom are in negative equity.

Meanwhile, figures out yesterday showed that Europe's economic recovery has stalled. This will make the ECB less inclined to raise rates as its main concern is to keep inflation down.

The new data showed heavyweight Germany grinding to a standstill in the fourth quarter of 2009, despite gains for France and Poland.

Economic growth in the eurozone was a meagre 0.1pc over the previous quarter, compared to 0.4pc growth in the third quarter, according to the EU data agency, Eurostat.

It added that gross domestic product fell by 4.1pc across the eurozone over the whole year.

Irish Independent

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