250,000 mortgage holders face hike

AS many as 250,000 homeowners on standard variable loans may soon be forced to pay out at least an extra €76.50 per month on mortgage repayments.

Sources believe banks will move quickly to hike interest rates on standard variable mortgages as soon as NAMA is up and running.

Some of the country’s biggest lenders said yesterday they had no plans to increase rates but AIB, Bank of Ireland and EBS all said that rates are under constant review. Permanent TSB (PTSB) is expected to move first on a rate hike, which is expected early next month.

Goodbody stockbrokers expects rates to increase by 0.5% in the medium term, which would mean an extra payment of €918 a year for homeowners on standard variable rate mortgages.

PTSB increased rates by 0.5% last summer. Of the group’s€27 billion Irish mortgage portfolio, almost 25% is in the standard variable rate kind so implying a 0.5% hike equates to €34 million a year.

Director of the Irish Mortgage Corporation Frank Conway said at the time it was widely expected PTSB would increase further and that other banks would also follow suit.

“However, the fact that NAMA needed to pass into legislation, the mood for consumers being hit with rising mortgage costs was probably extremely low,” he said.

He said there is little doubt banks will increase the standard variable rates.

“Banks abandoned the tracker mortgage concept to regain control over costs and part of that control includes adjusting costs to maintain costs,” he said.

Goodbody analyst Eamonn Hughes said: “We have flagged on many occasions that margins in the Irish banking system are going to have to go up as banks need to generate earnings to rebuild balance sheets, particularly as the economy and customers de-leverage.”

It’s estimated that up to 250,000 homeowners have standard variable rates. Ciaran Callaghan of NCB Stockbrokers said with the debt markets remaining strong at present, he expects “imminent funding issues” from the other domestic Irish banks, with Bank of Ireland suggested as the next candidate.

“Neither AIB nor BoI have jacked up the cost of their variable rates as of yet, but this is likely to change as the cost of the liability side erodes margins as funding is rolled over,” he said.

A spokeswoman for EBS said: “We review our rates on an ongoing basis, no plans to make any changes at this time.” AIB and Bank of Ireland also said they have no plans to increase rates.

Mr Callaghan said: “Any indication of government interference or pressure that restricts the banks’ ability to set rates commercially with regard to the cost of funding would be taken very negatively by the market, and could undermine their investment cases as they attempt to raise capital privately from investors.”