Lenders ‘expected’ to follow hike

OTHER lenders are expected to follow an anticipated move by Permanent TSB to hike interest rates resulting in more payment hikes for house owners.

Director of the Irish Mortgage Corporation, Frank Conway says if PTSB announces an increase in interest rates for standard variable customers, he expects other lenders to follow in relatively short order.

“All have been clear that they will do what’s needed to ensure their survival and this includes charging more for a wide range of services, including mortgages.

“Remember, in the spring of 2010, all lenders moved in tandem when increasing interest rates on standard variable rate (SVR) customers, I see little reason why they would break ranks now,” he said.

In terms of PTSB, while the lender will say that their average mortgage value is less than €100,000, the most vulnerable are those that purchased property at or around the height of the property boom and where mortgage amounts were much higher, according to Mr Conway.

“These mortgage holders are in significant negative equity and negative income with mortgage balances that are well in excess of the values of their homes,” he said.

For a standard variable rate mortgage holder, with an outstanding balance of €250,000, current rate of 4.65% their repayment based on a 0.5% increase will result in repayments increasing from €1,289.09 per month to €1,365.07 per month, which is a €75.98 increase.

“In an era where net take home pay is falling like a rock and some insurance costs are increasing, further increases to mortgage repayments will badly affect the financial well-being of many,” said Mr Conway.

If PTSB move as expected with a further half percent increase, it will mean that since August 2009, the lender will have increased the cost of borrowing for its standard variable rate customers by 2%.

In real terms, repayments on a €250,000 mortgage will have increased by €291 per month or €3,488.76 annually.

Kevin McNerney, a member of TAG, the Trusted Advisor Group said: “It is very likely that we will see the majority of the banks follow suit in the next few weeks and that, certainly by the end of the first quarter, all variable rate mortgage holders will have been hit by an increase of around 0.25%.”

Irish Brokers Association chief executive Ciaran Phelan said: “PTSB led the last round of increases in 2010, so it’s likely that the other Government supported banks will follow suit in the next few weeks.”

He said that concern is that once the banks move to increase these will almost certainly remain for the life of the mortgage.

“With 10,000 families already on the brink of repossession, allowing the taxpayer-supported banks to increase the profitability of their captive mortgage clients is untenable.

“If this is in fact the case then it is time the Government acted to make it abundantly clear to state-owned banks who is in charge. If the Government can stop the bonuses, it can stop these margin increases,” he said.