Ulster Bank joins rush to increase mortgage rates

ULSTER Bank has become the latest lender to hike interest rates yesterday, announcing a 0.5% increase, which will add around €60 a month to a €200,000 mortgage.

The move followed that of Permanent TSB, which announced a 1% hike yesterday but said they will not raise interest rates again this year outside of any move by the European Central Bank.

The 1% Permanent TSB hike adds €120 extra a month to a €200,000 mortgage. On a €300,000 mortgage, the increase will mean an additional €185 a month or €2,217 annually.

This is the fourth rate increase announced by Permanent TSB since August 2009 and it is also the largest hike in one go. The new SVR rate will increase to 5.19% from March 7.

The bank also announced plans to cut its staff numbers by 280 over the coming months.

Permanent TSB chief executive David Guinane said that the two moves were a “major part” of the bank’s plans to return the bank to profitability by “reconfiguring its operations in light of higher costs and reduced business volumes.”

“We have set out a roadmap for the recovery of the bank, and while that impacts on both customers and staff, it is key to the ultimate recovery and success of the bank.

“We’re entering a new period for banking in Ireland and we have to ensure that permanent TSB bank is correctly sized and has the correct margins for the market conditions we are operating in at present,” he said.

The increase in the bank’s rates will affect 80,000, or 37% of its mortgage customers.

Ulster Bank, meanwhile, will hike rates by 0.5%, from 3.85% to 4.35%, from March 1. Other banks are now expected to follow suit in the coming months.

Director of the Irish Mortgage Corporation, Frank Conway, said the rate increases will present a “significant challenge” to mortgage customers.

“Mortgage arrears are likely to continue rising as a result of the latest rate increases,” he said.

On fixed rate mortgages, Permanent TSB is understood to be ‘suspending’ its current fixed rate offers and planning to replace them with a new suite of fixed rate deals shortly.

The bank was expected to announce an end to fixed rate mortgages yesterday.

“The lack of clarity on fixed rates is not a surprise. Permanent TSB effectively shut its doors on the fixed rates in late 2008 when it withdrew its popular one-year and three year deals.

“Since then, its best fixed rates were only available to customers with deposits of 50% or more” said Mr Conway.