Mortgage rate hikes Ireland: Borrowers should prepare for a new cycle of mortgage rate hikes by the main banks

Banks poised to start cycle of new mortgage rate hikes, borrowers have been warned.

The Bank of Ireland announced yesterday that it is increasing its new fixed interest rates by 0.25 percentage point, effective immediately. This followed a 0.5 percentage point rise from AIB to its fixed interest rates.

Permanent TSB is expected to announce higher fixed rates of between 0.25 and 0.5 percentage point as early as next week.

Broker Michael Dowling said banks are currently taking a “soft” approach to rate hikes, but the pace of hikes will pick up in the coming months.

Mr Dowling said the three main banks would not be able to hold out much longer after the European Central Bank (ECB) interest rate rose to 2 percent after three record hikes since the summer.

The big three banks can absorb the ECB’s higher lending rates for the time being because they have millions of dollars in household deposits.

They pay depositors little or no interest, but get 1.5 percent from the ECB for keeping those funds with them.

But Mr Dowling said there will be pressure on banks to start offering savers decent returns.

“If the banks have to pay savers higher interest rates, they have to recoup the money by charging higher mortgage rates,” he said.

This would mean that the current “soft-soft” approach to mortgage rate hikes would change and the pace of mortgage rates would pick up.

“There is no doubt that the pace of mortgage rate hikes will increase,” he said.

The ECB has pushed through three jumbo hikes to its main refinancing rate, with another mega hike likely next month, with the possibility of another hike in June.

Central Bank Deputy Governor Sharon Donnery confirmed this yesterday when she said consumers should brace for further rate hikes, particularly if energy costs or wage demands push prices higher.

“As of this writing, it is clear that our current cycle of rate hikes still has work to do,” she said in a keynote address to the Nevin Economic Research Institute.

She also warned that “supply cuts in gas could continue to drive up wholesale prices, including into winter 2023.”

While the central bank believes inflation will ease next year, an energy supply shock or rising wage demands could keep inflation high for longer, Ms Donnery said.

Her comments came as the Bank of Ireland is set to raise interest rates on its fixed rate mortgages by 0.25 percentage point for new customers.

The Bank of Ireland’s new interest rates apply immediately to new borrowers and those switching.

This means the bank’s flagship interest rate of 1.9 percent for those borrowing more than €400,000 with no repayment will rise from 1.9 percent to 2.15 percent for new borrowers and switchers.

However, the new tariffs will not affect existing BoI customers who reach the end of a fixed tariff.

You will still be able to hold on to the rates that were in effect before the last increase.

There is no increase in variable interest.

Tracker customers automatically face higher interest rates in line with the ECB’s announced three record hikes in the last four months.

The move comes after AIB increased its fixed rates by 0.5 percent in recent weeks.

The Bank of Ireland will allow those who already have a new mortgage approval to receive the previous rates provided they draw by December 9.

This move, giving four weeks’ notice to those in the process of obtaining or switching to a new mortgage, is consistent with what AIB has been doing.

It comes after finances
Ireland was heavily criticized for initially announcing a rate hike, which hit those just getting a mortgage.

Bank of Ireland customers with existing fixed rates are unaffected by the recent rate hikes. Mortgage rate hikes Ireland: Borrowers should prepare for a new cycle of mortgage rate hikes by the main banks

Fry Electronics Team

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