Agony for homeowners as 1pc mortgage hike predicted

Adelina Campos

HARD-PRESSED homeowners are likely to face added financial pressure this year as experts predict a rise in mortgage interest rates.

The Irish Mortgage Brokers has revealed that it expects Irish banks to hike up interest rates by 1pc this year.

Experts believe this increase will be effective from as early as next month and is likely to be accompanied by an end to fixed-rate loans.

If this is confirmed, it would mean that mortgage payments would rise significantly, increasing the risk of homeowners falling behind on payments or being forced to sell their homes.

The 1pc hike would add €1,280 a year to repayments of a €200,000, 25-year loan if the move takes place.

Operations Manager with the Irish Mortgage Brokers, Karl Deeter, explained the reasons for their pessimistic forecast.

"In short, 2011 is likely to be a washout in the Irish mortgage market, lending will be restricted and only done at higher margins," he said.

Mr Deeter said that he expected fixed rates to be temporarily removed from the market, or offered on a limited basis.

Almost 60pc of Irish residential mortgages -- over 450,000 -- are trackers where the interest rate is capped at a fixed margin over the official ECB rate, but this figure could soon change if Mr Deeter's calculations are correct.

If fixed rates are removed as he expects, this would allow banks, who are now borrowing well above the official ECB rate, to stop losing money.

Variable interest rates are likely to rest at or above 5pc by 2012, according to the Irish Mortgage Brokers.

As people find themselves unable to pay their mortgages, repossessions could increase by as much as 300pc in 2011.

Distressed homeowners could also find themselves forced to sell their houses, thereby flooding the housing market and leading to a fall in house prices.

Irish Mortgage Brokers added banks would certainly be forced to shed staff and close branches in 2011.

It believes that 20pc to 25pc of AIB branches will close and 10pc to 15pc of Bank of Ireland and EBS branches will do the same.