Archives December 2022

The main banks here say they will all be passing today’s ECB interest rate hike on to tracker mortgage customers, but variable and fixed rate borrowers will be spared for now.

There are around 200,000 tracker mortgages remaining in the country, while there are 130,000 people whose loans are on variable rates.

In a statement, Bank of Ireland said its tracker rates will increase by the 0.5% announced by the ECB at lunchtime.

“For most customers, this change will take effect from 10 January 2023,” it said.

“Customers don’t need to take any action right now. Bank of Ireland will write to all tracker mortgage customers confirming the new interest rate, the effective date, and their new repayment amount.”

It added that no decision has been made in relation to other products and all rates continue to remain under review.

It was a similar story from AIB, which said tracker customers will see their rates change in line with their contracts following the ECB action.

While Permanent TSB also confirmed that it will pass on the rate change to tracker borrowers, as per contracts.

Rates on other products will remain under review, a spokesperson added.

Ulster Bank, which has sold many of its mortgages to Permanent TSB, said it would increase the rates on its remaining tracker mortgages, including offset mortgage rates linked to the ECB rate, with the rises due to take effect from January 18.

KBC Bank Ireland said its tracker rates would also rise and all other mortgage rates are kept under constant review.

Pepper Finance, which services thousands of mortgages on behalf of funds, said tracker rates would also rise, but there would be no change to variable rates at present.

“It will have no immediate impact on variable rate customers, and no decisions have been made on passing on this additional ECB increase,” a Pepper spokesman said.

“We are acutely aware this is a challenging time for many people and our team is on hand to help anybody concerned about their ability to meet the payments, with a broad range of solutions which we can tailor to their individual situation.”

Non-bank lender, Avant, said keeps interest rates under review but only comments on a pricing change at the time of a formal announcement to its customers and brokers.

Irish banks have so far been slow to pass on the four rate increases announced by the ECB since July to their customers.

Source: RTÉ News, December 15 2022

THE European Central Bank announced another hike in its key interest rates in a move that will pile more pain on those with trackers and variable rates.

The move is expected to hit those whose mortgages have been sold to vulture funds hardest as they are stuck on variable rates that are the highest in the country.

The main refinancing rate of the European Central Bank (ECB), which is directly linked to the interest rate charged on trackers and influences variable rates, has gone up by 0.5 percentage point.

It is the fourth ECB rate hike since the summer.

Each 0.5 percentage point rise in European rates adds around €25 to monthly repayments for every €100,000 owed on a typical tracker mortgage. Over a year this is €300 in extra repayments.

The cumulative impact of the four rate rises will be close to €3,000 on a typical €200,000 tracker on a 25-year term.

The ECB, which is headed up by Christine Lagarde, has been pushing rates up aggressively in an attempt to rein in prices that have soared in the last year.

The European economies have been under inflationary pressure blamed on the reopening of economies after the Covid-19 pandemic, driven by supply bottlenecks and then surging energy costs due to Russia’s invasion of Ukraine.

The central bank for the 19-country euro zone has raised its key rates four times now.

Economists expect the ECB to continue to hike benchmark rates, but at a slower pace, with inflation expected to be close to a peak and the Frankfurt institution looking to reduce its vast holdings of government bonds.

Pepper, which services around 60,000 mortgages owned by vulture funds, said the new increase in ECB rates will initially only affect tracker mortgage customers, where such increases are automatically passed on as part of their contract.

“It will have no immediate impact on variable rate customers, and no decisions have been made on passing on this additional ECB increase.”

It said it was “acutely aware this is a challenging time for many people and our team is on hand to help anybody concerned about their ability to meet the payments, with a broad range of solutions which we can tailor to their individual situation”.

Mortgage servicers such as Pepper and Start and the funds that own the loans have been heavily criticised for passing on all four ECB rate rises in full in most of their customers.

These mortgage holders are typical stuck on variable rates as they servicers and vultures will not offer them the option of fixing their rates.

And most of those whose mortgages are owned by vultures are unable to switch lender as many have been in arrears in the past, or have a split mortgage, which part of the loan is put aside with repayments being made on it at a later date.

People whose loans were sold have already seen their rates go as high as 6.5pc, with some now at 7pc.

They have no option to fix, prompting consumer advocates to say they are “mortgage prisoners”.

Latest figures from the Central Bank indicate that there are just under 200,000 mortgage accounts on a tracker rate.

Another 150,000 or so are on variable rates.

Tracker rates are hit every time there is an ECB rate rise. The main banks have not increased their variable rates, but non-bank lenders and vulture funds have been pushing up variable rates.

Source: Irish Independent, December 15 2022

House prices could fall 12pc by the end of the decade if the Government was to meet its housing target and build 35,000 homes a year.

To achieve it would require more public money, higher numbers of foreign construction workers and more domestic workers moving from commercial to residential projects, a report by the Economic and Social Research Institute (ESRI) said.

“The issue is we do need to increase and find these workers,” said ESRI research professor Kieran McQuinn, one of the report’s authors.

“Increasing housing activity is clearly required in the domestic economy given the imbalance observed between the structural demand for housing and the actual supply. Definitely some realignment is going to take place between commercial and residential.”

The ESRI estimates the Government will miss its annual housing targets by around 10,000 units a year to 2030.

That means it would complete around 25,000 new dwellings a year instead of a targeted 35,000.

Meeting the 35,000 a year target would take the heat out of the housing market while increasing construction wages by 1pc by the end of the decade, the ESRI found.

ESRI analysis shows overall investment in home building has not recovered since the financial crisis, and is less than half the size it was in 2000, as a proportion of overall construction.

Investment in “other building and construction” – which includes commercial real estate but excludes home improvements – is now back to Celtic Tiger levels.

That means the number of new workers required “may not be as great” if some are redeployed from the commercial sector, the report said.

The study found the movement of foreign construction workers into the country has been “minor” compared to sectors such as IT and manufacturing since the 2008 crash.

In 2016, there were high numbers of French, German and Indian workers in IT, manufacturing and healthcare, with a proportion also in scientific and technical jobs.

Except for Romanian workers, the number of non-Irish workers in construction was negligible that year.

However, the study acknowledged the “high cost of housing itself can prove a challenge in attracting migrants” and migration “will put further upward pressure on house prices in the short term”.

The ESRI is calling on the Government to consider adding construction to its “critical skills” list for visas, and says a better use of vacant properties, modular housing and land market reform could help boost completions.

It said more public funding is needed, as the growth of new bank lending for construction has slowed faster than other sectors.

The study comes at the same time as a slowdown in housing starts and in overall building activity.

Residential building activity fell 16.2pc between July and September, compared to the previous three months, while housing commencements have slowed by about 10,000 since the first three months of the year.

The Government is on track to beat its house building target this year but to miss it in 2023.

Population growth over the last five years has risen at around three times housing stock, figures from the Banking and Payments Federation of Ireland (BPFI) show.

Increasing demand means house prices could continue rising without a “substantial increase in supply”, the BPFI said this week.

Annual house price growth slowed to just under 11pc in September, from a high of over 15pc earlier this year. But rental costs are surging, and are up by about 85pc over the last decade, the BPFI said.

Source Irish Independent 9/12