The Irish Times view on managing higher interest rates: action is needed

The sharp rise in interest rates since the summer of 2022 has hit many households hard. The decision by the European Central Bank to announce another increase on Thursday will not have helped. The ECB’s move, at a time when the euro zone economy is weakening fast, is questionable.

Many of those on tracker mortgages, who are hit most directly by increases, are well into their mortgage term. This does not mean that coping with higher repayments is welcome, or even easy, but most are unlikely to slip into arrears.

However some will. Central Bank research has shown that there is a group of tracker mortgage holders with higher outstanding balances who are significantly exposed. And also a group whose loans were sold from Irish banks to international funds and are now managed on their behalf by specialist companies. In some cases these borrowers are already facing rates of 8 per cent plus.

All efforts must now be made to stop people falling into longer-term arrears. Central Bank figures for the first quarter of the year showed an uptick in shorter-term arrears and this data now bears close watching. Arrears must now be dealt with under a special Code of Conduct on Mortgage Arrears via a prescribed process. It is vital now that the banks are alive to the risk of building arrears and, as they are obliged to do, take a sympathetic and imaginative approach to dealing with those in difficulties.

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Two specific points are important. A recent announcement by Pepper, the credit servicing firm, that it would offer fixed rate arrangements to some borrowers in difficulty for a period of up to two years is welcome. It needs to be applied widely by these firms. Second, the main banks must make good on promises to allow those with credit servicing firms to switch to their products.

The Central Bank needs to take an active role here. Many borrowers previously in arrears were given assurances that they would be no worse off after their loans were sold to funds as part of the restructuring of Irish banking, but this has not turned out to be the case.