Huge cash blow to hundreds of thousands of Irish households as a big bank to raise interest rates

IRISH mortgage holders were dealt a blow today after Allied Irish Bank announced it will be raising interest rates, affecting hundreds of thousands of borrowers.

The move comes just hours after the ECB announced its latest rate hike of 0.5 percent this morning, bringing the total rate hike since last summer to 3 percent.

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The ECB has hiked interest rates four times since July last year in a bid to curb inflation.

It’s estimated that this increase means monthly repayments for Tracker mortgage customers will increase by €50 for every €100,000.

The next rate hike on the horizon is likely to be of a similar magnitude, namely 0.5 percent in March.

AIB said it would raise rates by an average of 0.5 percent on all tracker and fixed-rate mortgage products, with the new fixed rates taking effect tomorrow, February 3.

Rates on fixed-rate mortgages and tracker mortgages for customers of the bank’s Haven brand will also rise.

Now, a five-year fixed-rate mortgage costs 4.3 percent a year, while adjustable rates will rise 0.35 percent from March 14.

This means that an adjustable rate mortgage with a loan-to-value ratio of 80 percent has an interest rate of 3.5 percent.

A monthly repayment for a new five-year €100,000 AIB green fixed-rate mortgage with a loan value of 50-80 percent over 25 years is €513.65.

The previous monthly repayment would have been €481.74.

The ECB said this morning: “Given underlying inflationary pressures, the Governing Council intends to raise interest rates by a further 50 basis points at its next monetary policy meeting in March, and will then assess the future stance of its monetary policy.”

Before the decision, investors and economists were expecting the ECB to hike its deposit rate by another 50 basis points in March, taking it to a peak of up to 3.5 percent by summer

That would be the highest value since the turn of the century.

Trevor Grant, Chairman of the Association of Irish Mortgage Advisors, said: “For the 200,000 or so Tracker mortgage customers who have yet to do this, it’s definitely worth considering setting your mortgage rate before it’s too late.

“This advice also applies to those with variable interest rates or those with fixed interest rates maturing in the next 12 months or so.

“This latter cohort may be able to terminate their existing fixed rate arrangement without penalty and commit to lower interest rates than are likely to be available when their current fixed rate actually matures.

“All indicators suggest that the ECB will continue to hike rates as long as core inflation remains what has been described as “stubbornly high” and core inflation forecasts remain above 2%.

“Based on that, it is important that all of these mortgage customers review their existing terms and seek market-based advice from a mortgage broker to help them understand their interest rate options.”