Mortgage rates may rise 1% by year end

MORTGAGE rates could rise by an additional 1% by the end of the year, according to brokers.

Brokers have warned that banks could move to push up rates before the European Central Bank (ECB) does so towards the end of the year.

Finance Minister Brian Lenihan said yesterday that Permanent TSB’s decision to raise its standard variable mortgage interest rate by 0.5% last week reflects commercial realities.

Meanwhile, it has emerged that some 15,100 struggling homeowners were in receipt of state-paid mortgage supplements at the end of last year. This is four times more than at the end of 2007, at the height of the property boom.

Social and Family Affairs Minister Mary Hanafin revealed the figures yesterday while also admitting that a review of the supplement had now been delayed by a year and would not be finished until April.

The large numbers of people claiming the state-paid mortgage interest supplement cost taxpayers over €60 million last year.

Ms Hanafin is concerned about the amount in funds, which she described as “dead money” going straight into the hands of lenders.

Rates are likely to increase by a total 1% by the time the year is out, say brokers.

A 1% hike on a €250,000 standard variable rate (SVR) mortgage would mean an extra €143 per month.

Alan McQuaid of Bloxham Stockbrokers said it would be a reasonable assumption to say banks would hike rates twice by the end of the year.

“Whether people like it or not, domestic banks are going to have to address their balance sheet difficulties and increase margins irrespective of what the ECB does, and that means higher mortgage rates and lower deposit rates going forward,” he said.

The ECB meets today to discuss interest rates but no hike is expected until at least September this year. ECB rates affect those on tracker mortgages and are at an all time low of 1%.

Director of the Mortgage Finance Company Kevin McNerney said he believes banks will increase rates gradually by smaller amounts so that they might go unnoticed.

“If the ECB hike by a quarter of a percent banks will copy that and add on a little,” he said.

He believes Permanent TSB will hike again before the year is out.

Director of the Irish Mortgage Corporation Frank Conway said banks will move sooner rather than later on rate hikes in order to limit their losses.

“For those with negative equity, they have fewer options. In many cases, they will have to accept the increased repayments as fixing with their existing lender could mean a significant increase,” he said.