Rising mortgage interest rates Ireland: Borrowers should brace for a new round of mortgage hikes by major banks


Banks are about to embark on a cycle of further mortgage rate hikes, borrowers have warned.

Bank of Ireland announced yesterday that it was increasing its new fixed rates by 0.25 percentage points with immediate effect. This follows a 0.5 percentage point increase in the AIB to its fixed rates.

The permanent TSB is expected to announce higher fixed rates between 0.25 and 0.5 percentage points as early as next week.

Broker Michael Dowling said banks are taking a “soft-soft” approach to rate hikes at the moment, but the pace of the hikes will start to pick up in the coming months.

Mr Dowling said the three major banks could not hold out for long after the European Central Bank (ECB) rate hit 2% after three record highs since the summer.

The three major banks are able to absorb the ECB’s higher lending rates for now, as they have millions of euros in household deposits.

They pay little or no interest to depositors on these, but are paid 1.5% by the ECB for leaving these funds with them.

But Mr Dowling said the pressure should be on banks to start giving savers decent returns.

“If banks have to pay higher rates to savers, they will have to recoup the money by charging higher mortgage rates,” he said.

This would mean that the current “soft-soft” approach to mortgage rate hikes would change and the pace of mortgage rates would pick up.

“There is no doubt that the pace of mortgage rate increases will accelerate,” he said.

The ECB has imposed three giant increases to its key refinancing rate, with another mega hike likely next month, with the possibility of another hike in June.

Central Bank Deputy Governor Sharon Donnery confirmed this yesterday, when she said consumers should prepare for further interest rate hikes, particularly if energy costs or wage demands push prices up.

“What is clear right now is that our current rate hike cycle still has some way to go,” she said in a keynote address at the Nevin Economic Research Institute.

She also warned that gas supply cuts “could drive up wholesale prices even further, including for winter 2023”.

While the Central Bank thinks inflation will decline next year, an energy supply shock or rising wage demands could keep inflation higher for longer, Ms Donnery said.

His comments came as the Bank of Ireland is to raise interest on its fixed rate mortgages by 0.25 percentage points for new customers.

The new Bank of Ireland rates will take effect immediately for new borrowers and money changers.

This means that the bank’s interest rate of 1.9% for those who borrow more than €400,000, without repayment, will increase from 1.9% to 2.15% for new borrowers and money changers.

However, the new tariffs will not affect existing BoI customers who are coming to the end of a fixed tariff.

They will still be able to lock in the rates that were in place before the last hike.

There is no increase in variable rates.

Tracker customers automatically face higher interest in line with the three record hikes announced by the ECB over the past four months.

The move comes after AIB raised its fixed rates by 0.5% in recent weeks.

The Bank of Ireland will allow those who have already obtained approval for a new mortgage to obtain the rates in place so far, provided they withdraw them before December 9.

This decision to give those in the process of getting a new mortgage, or switching to one, four weeks notice is consistent with what AIB has done.

It comes after Finance
Ireland has been heavily criticized for initially announcing a rate hike that hit those who were in the process of taking out a mortgage.

Bank of Ireland customers on existing fixed rates will not be affected by the latest rate hikes.

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