Article: 250,000 mortgage holders face imminent hike

The_Conductor

http://www.examiner.ie/business/250000-mortgage-holders-face-hike-110007.html

AS many as 250,000 homeowners on standard variable loans may soon be forced to pay out at least an extra €76.50 per month on mortgage repayments.

Sources believe banks will move quickly to hike interest rates on standard variable mortgages as soon as NAMA is up and running.

Some of the country’s biggest lenders said yesterday they had no plans to increase rates but AIB, Bank of Ireland and EBS all said that rates are under constant review. Permanent TSB (PTSB) is expected to move first on a rate hike, which is expected early next month.

Goodbody stockbrokers expects rates to increase by 0.5% in the medium term, which would mean an extra payment of €918 a year for homeowners on standard variable rate mortgages.

PTSB increased rates by 0.5% last summer. Of the group’s€27 billion Irish mortgage portfolio, almost 25% is in the standard variable rate kind so implying a 0.5% hike equates to €34 million a year.

Director of the Irish Mortgage Corporation Frank Conway said at the time it was widely expected PTSB would increase further and that other banks would also follow suit.

"However, the fact that NAMA needed to pass into legislation, the mood for consumers being hit with rising mortgage costs was probably extremely low," he said.

He said there is little doubt banks will increase the standard variable rates.

"Banks abandoned the tracker mortgage concept to regain control over costs and part of that control includes adjusting costs to maintain costs," he said.

Goodbody analyst Eamonn Hughes said: "We have flagged on many occasions that margins in the Irish banking system are going to have to go up as banks need to generate earnings to rebuild balance sheets, particularly as the economy and customers de-leverage."

It’s estimated that up to 250,000 homeowners have standard variable rates. Ciaran Callaghan of NCB Stockbrokers said with the debt markets remaining strong at present, he expects "imminent funding issues" from the other domestic Irish banks, with Bank of Ireland suggested as the next candidate.

"Neither AIB nor BoI have jacked up the cost of their variable rates as of yet, but this is likely to change as the cost of the liability side erodes margins as funding is rolled over," he said.

A spokeswoman for EBS said: "We review our rates on an ongoing basis, no plans to make any changes at this time." AIB and Bank of Ireland also said they have no plans to increase rates.

Mr Callaghan said: "Any indication of government interference or pressure that restricts the banks’ ability to set rates commercially with regard to the cost of funding would be taken very negatively by the market, and could undermine their investment cases as they attempt to raise capital privately from investors."

This story appeared in the printed version of the Irish Examiner Tuesday, January 19, 2010

Read more: http://www.examiner.ie/business/250000-mortgage-holders-face-hike-110007.html#ixzz0d4r1ntYG

Senna

Its been said many times since the middle of 2009, if your on a standard variable and any rise comes as a shock, you have no-one to blame but yourself.

I still reckon SV's wont be over 4.5% till Q4 2012, but once the ECB starts rising then, 6-7% will be normal, if not low.

The_Conductor

Snub wrote: »

Its been said many times since the middle of 2009, if your on a standard variable and any rise comes as a shock, you have no-one to blame but yourself.

I still reckon SV's wont be over 4.5% till Q4 2012, but once the ECB starts rising then, 6-7% will be normal, if not low.

What do you reckon a reasonable margin for Irish lending institutions is?
When you factor that the interbank lending rate for Irish lenders is now already between 5.8 and 7.2%- the lower end being AIB and BOI)- and they need to refinance 12 billion in residential mortgages in 2010, aside from NAMA etc- and the ECB is no longer lending- it seems highly improbable that variable rate rises will be put on the long finger. As soon as NAMA has cleared the decks (say Easter)- and the banks no longer consider themselves under an obligation (don't even go there!!!)- surely this would be when they'd pounce- and with big increases- perhaps as much as 1% in a go, and a few of them- perhaps making up 2-2.5% in short shrift?

Part of my own mortgage is variable- I've had an accelerated repayment in place for that portion in particular for the past 3 years........

Senna

smccarrick wrote: »

What do you reckon a reasonable margin for Irish lending institutions is?
When you factor that the interbank lending rate for Irish lenders is now already between 5.8 and 7.2%- the lower end being AIB and BOI)- and they need to refinance 12 billion in residential mortgages in 2010, aside from NAMA etc- and the ECB is no longer lending- it seems highly improbable that variable rate rises will be put on the long finger. As soon as NAMA has cleared the decks (say Easter)- and the banks no longer consider themselves under an obligation (don't even go there!!!)- surely this would be when they'd pounce- and with big increases- perhaps as much as 1% in a go, and a few of them- perhaps making up 2-2.5% in short shrift?

Part of my own mortgage is variable- I've had an accelerated repayment in place for that portion in particular for the past 3 years........

Sorry, missed you reply. Rereding my post i meant to say Q4 2011 as in nearly 2 years away, not 2012. But as for margins, i think 1.75% is normal at the moment with obvious pressure being put on them to kept them that low. But i would look at the UK average margin of 4.5% as being a normal margin. However i do believe they are still getting money from the UK central bank at a low rate.
I knew our cost of lending had increased, but i didn't realise it was as high as 7.2% (in some cases). Do you have a link for this info, as it would be interesting to see what level my bank is at.
I always though budgeting for 6-7% was safe enough, obviously i'm wrong.

But i still think recapitulation (i believe will continue after NAMA) will stop banks putting up rates very quickly. Again just a way of rewarding people who took out huge mortgages off the back of tax-payers. Knowing FF, the rate hikes will be soften with more money being put into banks. Dont ask me where its coming from.
I'd also say small rises at a time, 25-50 points, but of course all adding up by the end of the year.

johnnyskeleton

Good. Borrowers should pay for their own reckless lending, not the taxpayer. Yet somehow people will complain about increase margins far more than they will complain about increased taxes.

smccarrick wrote: »

What do you reckon a reasonable margin for Irish lending institutions is?

If the plan to borrow from the ECB for the NAMA bonds works out, it will need to be at least 3% to avoid the risk of having banks rely on this comfy cushion to keep them afloat.

Actually, it wouldn't be a bad idea to set up a bank right now, buy all the toxic loans pre-NAMA, sell those loans to NAMA for 4% and borrow at 1% from the ECB. Profit of 1.62bn per year courtsey of the tax payer. And once the ECB rate goes above the NAMA coupon, simply redeem the NAMA bonds and repay the ECB.

When you factor that the interbank lending rate for Irish lenders is now already between 5.8 and 7.2%- the lower end being AIB and BOI)- and they need to refinance 12 billion in residential mortgages in 2010, aside from NAMA etc- and the ECB is no longer lending- it seems highly improbable that variable rate rises will be put on the long finger. As soon as NAMA has cleared the decks (say Easter)- and the banks no longer consider themselves under an obligation (don't even go there!!!)- surely this would be when they'd pounce- and with big increases- perhaps as much as 1% in a go, and a few of them- perhaps making up 2-2.5% in short shrift?

In 2008 people paid c. 5% without losing their homes. I see no reason why the banks won't aim for this again. Sure if you look at PTSB they had higher rates than AIB & BOI and that was before the 0.5% increase. The 2.5-3% rates that AIB / BOI were offering was a political necessity but made no business sense.

Part of my own mortgage is variable- I've had an accelerated repayment in place for that portion in particular for the past 3 years........

The big difficulty in Ireland is whether you fix your rate or stay on variable. Clearly there is a high risk of interest rates increasing above the fixed rate levels (certainly AIB's 3.8% 5 year fix sounds good) but on the other hand you can't make additional capital payments during the fixed period. Maybe someone in such a hypothetical situation could get a term reduction to increase the principal payments while maintaining a fixed rate.

By the by, Karl Deeter is a big fan of long term fixed rates (as am I in theory but not in the practical terms of Irish banking):

http://www.thepropertypin.com/viewtopic.php?f=4&t=27694

Senna

Rather than starting a new thread; Many Euro countries have full term fixed rates, what rates would they be paying? (Average, roughly etc)

The_Conductor

Snub wrote: »

Rather than starting a new thread; Many Euro countries have full term fixed rates, what rates would they be paying? (Average, roughly etc)

In The Netherlands- current rates are between 5 and 6%, depending on the lender, when the mortgage was taken out, salary multiple being borrowed, % equity being borrowed etc.

Average is about 5.6%

I assume its similar in Belgium, Germany, France etc (I'm not familiar with their current rates though).

S.

Trampas

In an ideal world what would the ECB like to have interest rates to be or is just about having inflation at around 2% mark and what ever interest rate to keep it at that is their plan

The_Conductor

Trampas wrote: »

In an ideal world what would the ECB like to have interest rates to be or is just about having inflation at around 2% mark and what ever interest rate to keep it at that is their plan

They, akin to the Bank of England, have an inflation target of 2%.
Theoretically the ECB is free from political interferance- in practice, their policies closely mirror whatever the Germans and the French want.