Interest rate rise to cause arrears

A HIKE in interest rates will result in an immediate rise in the number of homeowners falling into arrears on their mortgage repayments.

The Irish Mortgage Corporation said that an expected rise in the base rate of interest by the European Central Bank (ECB) next month is not the right move for Irish mortgage holders at this time and will add further pressure on already struggling mortgage holders.

According to the Central Bank, more than 44,000 homeowners are now 90 days or more behind on their mortgage repayments. In addition, a further 35,000 mortgages have been restructured but are not classed in arrears. Typically, a mortgage is restructured to avoid that loan going into arrears.

Director of the Irish Mortgage Corporation, Frank Conway said there are also an estimated 100,000 mortgages which were used to purchase investment properties.

“Many of those loans were structured on a so-called interest-only basis. Many are now moving to full capital and interest repayments. This typically results in monthly repayments increasing three-fold,” he said.

He said the situation on residential mortgages in Ireland, as well as mortgages used to purchase investment properties, is akin to a tightrope.

“On one hand, lenders are attempting to stabilise their finances by increasing costs, but the knock-on effect is an immediate rise in the rate of delinquencies, which is adding further pressure on the banks.

“Banks have already increased costs for their standard variable rate customers. With Permanent TSB pushing rates up by a massive 2.5%, it now suffers one of the highest incidents of mortgages arrears of any of the prime lenders,” said Mr Conway.

Traditionally, the ECB has been seen as the “good guy” after reducing interest rates to record lows in the middle of 2009 to 1%.

However, Mr Conway said many will struggle to come up with the extra funds to pay the higher costs.