Banks are being urged to protect customers with variable interest rates from the ECB’s rate hike

Lenders have been urged to absorb the week’s rise in European interest rates rather than pass it on to adjustable rate mortgage holders.

Some 200,000 homeowners with adjustable rate mortgages will face a huge spike in the cost of home equity loans as the European Central Bank (ECB) embarks on a series of rate hikes, the first in 11 years.

Variable interest rates are among the highest on the market, with some as high as 4.5 percent.

The ECB rate hike announcement is due on Thursday.

A series of increases could increase the cost of maintaining an adjustable rate mortgage by €1,200 per year.

Tracker holders will see automatic increases, but banks and other lenders have discretion to decide whether to increase variable rates.

And the length of time it takes for first-time buyers and switchers to obtain mortgage approval and then obtain a home loan creates a great deal of uncertainty.

The fear is that by the time the mortgages are drawn down, many lenders will have increased their fixed and other interest rates.

The interest rate that the borrower ends up paying is the one that applies when they take out the mortgage.

However, due to huge demand from switchers and new borrowers, it can take up to three months for a mortgage to be approved and drawn down.

Consumers Association Chairman Michael Kilcoyne urged all lenders to copy the Permanent TSB and commit to adopting the first two ECB rate hikes.

TSB permanent chief Eamonn Crowley said last month his bank could absorb the first two rounds of ECB rate hikes and not raise adjustable-rate mortgage prices to gain market share.

Mr Crowley said Irish banks “can take some of these rate hikes for part of the time”.

Two hikes of 0.25 percent were announced, but a 0.5 percent hike in September could be implemented if high inflation persists. This probably affects about 450,000 people who have a tracker or variable rate.

Every 0.25 percent increase in ECB interest rates costs €30 more in monthly payments on a €250,000 tracker mortgage. A 0.75% increase in ECB interest rates would increase the annual repayments of such a mortgage by €1,200.

Mr Kilcoyne said: “Banks can well afford not to pass on the ECB’s hike to customers with floating rates. The taxpayers bailed them out when they were in trouble and we got very little thanks for that.”

Martina Hennessy of broker said a huge backlog had built up of people trying to switch their mortgage provider to a cheaper provider.

It takes about five weeks to get approval for a mortgage switch, although regulatory requirements state that applicants should be able to get mortgage approval in 10 days.

Lenders ICS Mortgages, Avant Money and Finance Ireland have raised some of their interest rates in recent months, but Permanent TSB, Bank of Ireland and EBS have all cut some of their mortgage rates. Banks are being urged to protect customers with variable interest rates from the ECB’s rate hike

Fry Electronics Team

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