The European Central Bank raised interest charges more than what they initially announced. Over the past few months, the rates have increased by around 1.25%. The clients have not yet been reached by institutions including Bank of Ireland and Permanent TSB.
Customers have a lot of pain for the future because there are a lot of uncertainties. They now have to deal with high mortgage interest rates in addition to inflation, rising electricity and fuel costs. New customers face a direct problem because their five-year fixed rates increase by 2%. As a first-time buyer, you will receive a rate of 5.95%. Long-term fixed loans rise by 1.49% to 1.58%. (depending on size and running time). As a result, banks such as AIB, ESB, and Haven must raise their rates for new and switching customers. The current customers are not affected. Customers with tracker mortgages face an increase in interest rates due to contractual obligations. Some of the new customers must take an expensive rate, which means they must pay 240€ more than before the ECB increase.
If the AIB, EBS, or Haven authorizes your mortgage, you have 4 weeks to complete the contract with them. People who have a fixed rate which expires the next year will have a big problem. They had a low-interest rate from the last year when we had a historically low rate. Now they must accept a new fixed rate, but the rates have increased and are now quite costly. In addition, there is the high cost of living brought on by inflation and the high cost of fuel.
The fact that some customers may switch to another bank must also be taken into account. This means that when a customer switches their mortgage to another bank, the new bank may require more time to process the request as the ECB’s interest rates increase. The bank must treat this switcher fairly and take into account their service levels in light of the rising rates.
Following the ECB’s increase in interest rates, AIB takes the first step towards raising mortgage rates. Therefore, the Bank of Ireland and Permanent TSB, two major banks, used this as an example and raised their own interest rates. As a result, the fixed rates increased by 0.5% while the variable rates at the AIB and its subsidiaries EBS and Haven remained unchanged. This year, they have increased their rates more than once. Because AIB does not raise its variable rates and because their rates are lower than those of Bank of Ireland and Permanent TSB, they are currently under a lot of pressure to do so. Therefore, Bank of Ireland and Permanent TSB must increase their fixed rates in the coming weeks; however, as their variable rates are already among the highest on the market, they do not need to do so. You can also get a mortgage from non-bank lenders like Avant Money, ICS Mortgages, and Finance Ireland.
This post was written by Jo Marie Fuchs who was a research intern at Irish Mortgage Brokers in October of 2022.