MORE THAN 50,000 mortgage-holders are facing an increase in their monthly repayments after Irish Life & Permanent (ILP) broke ranks from the other Irish lenders to increase the interest rate its charges for home loans.
The move by IL&P’s Permanent TSB unit, which is a beneficiary of the State guarantee on its liabilities, is considered likely to prompt similar action by other banks.
The plans of other Irish lenders are as yet unknown.
However, all financial institutions in the Irish market are under pressure due to rising loan losses, the high cost of funds and tight competition for deposits. With most banks radically curtailing the level of new lending they engage in, new profit streams are not open to them.
Permanent TSB is increasing the standard variable rate it charges by half a percentage point to 3.19 per cent from 2.69 per cent. The average affected mortgage is for €62,500, with 13 years to run. According to Permanent TSB, the average monthly repayment increase will be €14.75.
The relatively low average mortgage value for Permanent TSB’s standard variable product reflects the popularity in more recent years of the tracker mortgage product, under which the lender’s rates are contractually tied to the ECB rate. Therefore, the decision to increase the standard variable rate will have no bearing on its tracker rates.
Many Irish homeowners have been insulated to an extent from the effects of recent tax increases as they were beneficiaries of mortgage rate cuts thanks to a succession of cuts since last October by the European Central Bank (ECB) as it engaged in a series of exceptional measures to counter the force of recession in the euro zone.
Thus the IL&P move, which takes effect next Monday, will create a precedent for other lenders to follow suit, eroding some of the benefit to consumers from the ECB policy.
“We passed on all the ECB rate reductions even when others in the market didn’t,” said ILP’s spokesman last night.
“But the reality is that the cost of funds remains high, deposit rates are rising and margins are very tight.”
