Banks meet floating rate holders – as ECB announces another rate hike

People with adjustable rate mortgages from the main banks have been warned to expect increases in their repayments next.

The warning comes as the European Central Bank (ECB) prepares to announce its fifth rate hike today.

AIB Group, Bank of Ireland and Permanent TSB have so far taken it easy on their adjustable rate customers, despite the ECB raising rates four times since last July.

Mortgage experts said this would not last. Two more ECB rate hikes are expected in the coming months.

They pointed out that some floating rates are only 2.75 percent because they haven’t gone up yet.

The ECB’s refinancing rate is set to rise to 3 percent with today’s announcement. That means a variable rate of 2.75 percent is now below the cost of financing such a mortgage.

So far, banks have focused on fixed rates. The three big banks have each pushed up fixed rates by one percentage point in recent months.

Automatic increases for the roughly 200,000 Irish homeowners with tracker mortgages are also in the pipeline, with the ECB’s main refinancing rate set to rise to 3% from 2.50%.

And more rate hikes are on the horizon.

The average margin on a tracker is about 1.15 percentage points — which means the average tracker customer will end up paying 4.15 percent, compared to just 1.15 percent less than a year ago.

For those with €150,000 left on their mortgage, the move will increase repayments by around €35 ​​per month.

If you take into account all increases since July, calculations by Daragh Cassidy from the price comparison portal Bonkers.ie result in a total increase of over 200 euros per month.

The ECB is likely to hike rates again at its next meeting in March, he said.

“The ECB’s move was widely expected and it will rise again in March. The question is when and to what extent the most important lenders will react here.”

He said it was clear more increases were on the way.

Those with variable rates are warned that they are likely to see their repayments increase in the coming weeks. So far, the top three lenders have not increased their variable interest rates in response to any of the ECB’s rate hikes.

There are around 200,000 Irish adjustable rate borrowers. As floating rates in Ireland were already high before the ECB started raising rates, the hikes are unlikely to be fully passed on.

“However, an increase of up to a percentage point for existing variable rate customers is very likely in the coming weeks,” Mr. Cassidy said.

AIB and its Haven subsidiary still offer a 2.75 percent variable interest rate for those with a large deposit or a lot of equity in their home.

Broker Michael Dowling of Dowling Financial said the variable interest rates at AIB Group “stand out as exceptional value for money.” The Group’s variable interest rates range from 2.75 percent to 3.15 percent, depending on the loan-to-value (LTV).

Permanent TSB’s variable rates range from 3.5 percent to 3.9 percent, depending on the LTV. The Bank of Ireland has variable interest rates between 3.9 and 4.5 percent.

Karl Deeter of Onlineapplication.com, a brokerage service, said all lenders would likely charge higher interest rates across the board – as deposit-taking banks come under tremendous pressure to pay savers more.

The hardest hit by the ECB’s rate hike this week are those whose mortgages have been taken over by a vulture fund. They’ve passed on rate hikes in full, with most homeowners using floating rates.

Vulture funds already charge their clients around 6.5 percent, with some charging 7 percent. And they generally don’t offer fixed prices.

About 113,000 mortgages are owned by unregulated vulture funds and managed by regulated loan servicers like Pepper and Start.