ICS hikes fixed-rate mortgages in sign that bank rivals may not be far behind

Financial markets are betting that the ECB will start squeezing eurozone interest rates higher in the coming months to respond to inflation pressures that have been made worse by the war in Ukraine. 

An early hike in fixed-rate mortgages by lender ICS Mortgages signals the end of the long cycle of home loan reductions in Ireland, as the surge in global inflation takes its toll.                                      

ICS which is owned by the Dilosk had hinted in recent weeks it would be forced to increase mortgage rates but it has made its move a number of months before other bank-based rivals because it takes its wholesale funding from a smaller pool of investors. 

Financial markets are betting the ECB will start squeezing eurozone interest rates higher in the coming months to respond to inflation pressures that have been made worse by the war in Ukraine. 

That suggests that dominant lenders AIB, Bank of Ireland, and Permanent TSB, as well as much smaller rivals like Avant Money, that are all fully-fledged bank lenders, will also hike rates if the ECB decides to increase official rates.  

The move by ICS "is going to make people nervous" that the main lenders will hike their mortgage rates some time later this year, said Michael Dowling, a senior mortgage broker. 

Mr Dowling said that ICS, which has long had ambitions to grow its current market share of around 3%, has had to act at an early stage because of the way it sources  its wholesale funds. It will still have ambitions to grow with the departure of Ulster and KBC, which between them have about 25% of the home mortgage market.        

ICS said it had immediately increased all its three-year and five-year fixed rates across all the loan-to-value bands, but had that its "market leading low variable rates remain unchanged”. 

The cost of its home loan fixed for three years for new customers borrowing up to 90% of the value of the property (a reference point for first time buyers) rises to 2.55% from 2.35%.

The cost of a similar ICS home loan but fixed for five years rises to 2.69% from 2.50%.   

“These fixed-rate rises reflect the significant upward pressure on the cost of financing fixed interest rate products in the international markets," said ICS chief commercial officer Ray McMahon. "This is a result of considerable rate movements in capital markets due to inflationary pressures being felt across Europe and globally," Mr McMahon said.

Most commentators believe that global central banks will follow on with rate hikes this year, despite the damage done to growth in leading economies by the Ukraine war.    

"The response of central banks to the surge in global commodity prices, and the war in Ukraine more generally, will come into sharp focus this week, with decisions from policy meetings due in the US, UK and Japan," said Neil Shearing, chief economist at Capital Economics, in a commentary.  

"Only a few weeks ago, there was healthy debate in the market as to whether the Federal Reserve would begin its tightening cycle with a 50-basis point move, or even with a surprise, inter-meeting hike," Mr Shearing said.  

"There’s no question that war in the Ukraine has shifted the terms of that debate, but they haven’t shifted too far. In advanced economies, we still think that policy for the most part is likely to be tightened this year, and we don’t think that the peak in interest rates in this cycle is likely to change much," he said.