Pepper raises rates on most variable mortgages as average hits 7%

Pepper Finance, the mortgage services provider used by a number of investment funds for Irish loans acquired after the financial crash, is increasing borrowing costs on most of its standard variable mortgages in a move that will leave the average rate at about 7 per cent.

The company said on Friday that it will add between 0.5 and 1.25 percentage points to the cost of most of the 21,000 variable mortgages it services. The average rate stood at 6.3 per cent before the move and it is understood that this will now move to approximately 7 per cent.

The move brings variable rate customers up to date on the European Central Bank (ECB) rate increases in recent times, up until June. However, it does not factor in fresh 0.25 of a percentage point hike announced on Thursday by the central bank, which has left the ECB’s main lending rate at 4.25 per cent.

“For those customers most impacted by rising interest rates and the rising cost of living, we have a broad range of solutions available,” Pepper said. “We will work with customers to put a solution in place that addresses their unique and individual circumstances and affordability.”

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Pepper services about 80,000 Irish mortgages owned by investment funds such as Carval, Goldman Sachs and Pimco. Many of the underlying borrowers are unable to refinance at lower rates with mainstream lenders because they are considered higher-risk borrowers.

Pepper said that temporary and longer-term solutions for borrowers facing financial difficulty include interest-only payments, term extensions, arrears capitalisations, fixed reduced monthly repayments, and interest rate discounts, both for short-term and extended periods.

ECB president Christine Lagarde said on Thursday the organisation will have an “open mind” in September on whether to increase future rates or press the pause button, after pushing through a ninth increase in a row to leave its main lending rate at 4.25 per cent.

While Ms Lagarde previously emphasised following recent rate announcements that the ECB had more ground to cover in raising borrowing costs to rein in inflation, she said on Thursday that “at this point in time, I wouldn’t say” that remains the case.