TWO MORE banks have raised mortgage rates again due to the continuing high cost of funding in the volatile money markets.

Bank of Ireland has increased its mortgage rates on its fixed-rate products by between 0.45 and 1.15 percentage points. Bank of Scotland Ireland, which sells mortgages through brokers, has raised fixed rates by between 0.65 and 0.8 percentage points, and tracker rates for new customers by between 0.15 per cent and 0.25 percentage points. Both banks blamed rising bank funding costs.

Mortgage lenders are being forced to increase borrowing costs for new customers and tighten their lending rules as the global banking crisis and the high cost of funding show no sign of easing.

The cost of two-year and three-year bank funding rose by up to 0.55 percentage points last week following the announcement by the European Central Bank (ECB) that it may increase its rates next month to curb record euro-zone inflation.

These increases have the same effect as two ECB rate rises.

Bank of Ireland is the third largest mortgage lender, controlling about a fifth of the home loans market. A spokeswoman for the bank said it had seen "significant increases in the fixed-rate cost of funds in the markets that are used to fund fixed-rate mortgages" and that consequently it had to review and increase its fixed-rate prices.

The bank's three-year fixed rate is rising 1.15 percentage points from 5.1 per cent to 6.25 per cent. This product will now cost €219 more a month for the three-year fixed period on a €300,000 mortgage with a 30-year term, increasing monthly repayments from €1,628 to €1,847.

Bank of Ireland has already increased its mortgage costs, raising fixed and tracker rates by between 0.1 and 0.35 percentage points last month.

The bank said yesterday that it was not raising its tracker rates in its latest round of increases.

Bank of Scotland, which brought increased competition to the market when it started selling mortgages in Ireland in 1999, has also previously raised its mortgage rates in recent weeks in line with rising funding costs.

The bank increased tracker rates, scrapped 100 per cent mortgages and withdrew fixed-rate mortgages in April. It also capped the maximum new mortgage for owner-occupiers and buy-to-let investors at 90 per cent of the value of a house and 80 per cent of the value of an apartment.

The bank reintroduced fixed-rate products last month at higher rates but suspended new mortgage for buy-to-let investors, pending a review of that business.

AIB held off increasing mortgage rates longer than its rivals, but it moved on Thursday, raising tracker rates by up to 0.4 percentage points and all but one of its fixed rates by up to 0.6 percentage points.

The cost of three-month money, the benchmark for mortgage costs in the euro zone, rose to 4.97 per cent last week, its highest level since late 2000.