Banks urged to spare floating rate customers from ECB rate hike

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Lenders have been called upon to absorb this week’s rise in European interest rates instead of passing it on to holders of variable rate mortgages.

Around 200,000 homeowners with variable-rate mortgages are set to face a huge increase in home loan costs when the European Central Bank (ECB) embarks on a series of rate hikes, the first in 11 years.

The variable rates are among the highest on the market, with some reaching 4.5%.

The announcement of the ECB rate hike is scheduled for Thursday.

A series of increases could add $1,200 per year to the cost of servicing an adjustable rate mortgage.

Tracker holders will see automatic increases implemented, but banks and other lenders have the discretion to raise variable rates.

And the time it takes for first-time buyers and changers to get mortgage approval and then withdraw a home loan creates huge uncertainty.

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

The rate that borrowers end up paying is the rate that applies when they withdraw the mortgage.

But it takes up to three months to get mortgage approval and reduce due to huge demand from money changers and new borrowers.

Consumers’ Association chairman Michael Kilcoyne called on all lenders to copy Permanent TSB and commit to absorbing the first two ECB rate hikes.

TSB permanent chief executive Eamonn Crowley said last month that his bank could absorb the first two rounds of ECB interest rate hikes and not raise prices for variable rate mortgages in a bid to increase its market share.

Mr Crowley said Irish banks ‘can withstand some of these interest rate hikes for a while’.

Two increases of 0.25 pc were announced, but a 0.5 pc increase in September could be implemented if high inflation persists. This is likely to affect around 450,000 people who have a tracker or variable rate.

Every 0.25pc hike in ECB rates will cost €30 more in monthly repayments for a €250,000 tracker mortgage. An increase in ECB rates of 0.75 pc would add €1,200 to the annual repayments of such a mortgage loan.

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

Martina Hennessy of broker Doddl.ie said a huge backlog of people trying to switch their mortgage provider to a lower cost one had built up.

It takes about five weeks to get approval for a mortgage change despite regulatory rules that applicants should be able to get mortgage approval within 10 days.

Lenders ICS Mortgages, Avant Money and Finance Ireland have raised some of their rates in recent months, but Permanent TSB, Bank of Ireland and EBS have all cut some of their mortgage rates.

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