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Struggle to pay bills is about to get much worse

THE President of the European Central Bank (ECB), Jean-Claude Trichet, shocked us all last week when he suggested that the next ECB rate hike could be as early as this April. There are already 60,000 homeowners struggling to pay their mortgages.

With a raft of European interest rate hikes on the cards, many of them will find it even harder to pay their mortgage in a few weeks' time -- and tens of thousands more homeowners will share their fate.

We all knew that the ECB interest rate -- which influences the amount of interest you pay on your mortgage -- was on its way up. Yet surging oil prices and a pick-up in eurozone inflation mean this rate hike will now happen a lot sooner than we ever expected.

Some economists believe the ECB rate could increase four times this year.

As the ECB rate has been at an all-time low of 1 per cent for the last two years, this will be a big shock for many homeowners. Indeed, by the end of next year, the numbers struggling to repay their mortgage could be a far cry from the 60,000 cited last week by the Central Bank.

Homeowners with standard variable mortgages now face a double whammy of interest rate rises as the ECB hikes will come on top of those already unleashed by their lenders over the last 19 months.

Homeowners with tracker mortgages -- who have escaped the latest spate of standard variable interest rate rises -- will also see their mortgage bills increase as their interest rate tracks the ECB rate.

The only homeowners who can avoid ECB rate hikes are those on fixed rate mortgages -- but cheap fixed rates are like gold dust today.


Ulster Bank's chief economist Simon Barry expects the ECB rate to hit 1.75 per cent by the end of this year.

Alan McQuaid, chief economist with Bloxham Stockbrokers, believes the ECB rate could hit 1.50 by the end of this year and 2.50 per cent by the end of 2012. He expects rates to then peak at between 3.25 and 3.50 per cent in 2013.


Those on expensive standard variable rate mortgages will be the most affected by the ECB rate hikes. As tracker mortgages are cheaper than standard variable, the hike won't be as steep as it will be for those with a standard variable mortgage.

Tracker mortgages are no longer available but if you're on an expensive standard variable rate, it could be worth your while switching to a cheaper lender before the ECB starts to increase its interest rates.

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However, your chances of doing so could be slim. Neither AIB nor Ulster Bank allow you to switch your mortgage to them. Bank of Ireland, EBS Building Society, KBC Bank, National Irish Bank and Permanent TSB still accept switchers, however -- although certain conditions must usually be met.

"You need to be careful about switching to another lender as some of the rates offered by lenders are prohibitive," warns Michael Dowling, spokesman for the mortgage brokers, the Independent Mortgage Advisers Federation.

If you're coming off a cheap fixed-rate mortgage, you might still be able to get a tracker mortgage -- if that tracker was part of your mortgage contract.

"If you're on a discount mortgage interest rate which is coming to an end, check your mortgage offer as you may be entitled to a tracker rate after the discount rate expires," says Dowling.

"Even though tracker rates are no longer available, if you're entitled to a tracker rate under your loan offer, you may still be able to get one. Your bank should let you know if this option is there for you -- but you shouldn't assume that it will."

If you're lucky enough to be on a tracker mortgage, don't give it up. Fixed interest rates are currently more expensive than tracker mortgages -- and this is unlikely to ever change. Your lender cannot force you to give up your tracker mortgage -- even if you fall behind on your mortgage repayments.

When contacted by the Sunday Independent last week, most Irish lenders said they would continue to honour tracker mortgage contracts for existing customers -- and that they had no plans to withdraw tracker mortgages from them. KBC Bank, however, has a clause in some of its mortgage contracts which suggests it could withdraw a customer's tracker mortgage if interest rates move in a certain direction. The lender refused to say last week whether or not it had enforced that clause on any of its customers -- or if it planned to use the clause to withdraw tracker mortgages from existing customers.

KBC said it had 20,000 tracker mortgage customers. "All home owners enter into a contract with their mortgage providers for the provision of a loan to purchase their home," said a spokeswoman for KBC. "As with any contract, this outlines the terms and conditions which must be met by both parties -- both the lender and the borrower."

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