It was ironic that within hours of the European Central Bank leaving its interest rates untouched for the first time since July 2022 Bank of Ireland increased its variable rate for the first time in that period by a quarter of a percentage point to 4.75 per cent.
This puts it just marginally above the main 4.5 per cent ECB rate.
Not that the Irish lender has left all of its rates untouched through the 10 successive increases pushed through by the ECB since it began hiking them in a bid to temper high inflation across the euro zone.
Tracker mortgage customers saw their rates rise in line with the ECB increases each time, albeit from a low base during the era of ultra-low interest rates. And Bank of Ireland had also increased its fixed rates during that time, by 1.75 percentage points for new customers and by 1.25 points for existing ones.
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The bank’s focus on mortgages post the 2008 crash was on directing customers towards its fixed rates, with its variable at an uncompetitive level at a time when ECB rates were practically zero. Only about 10 per cent of Bank of Ireland’s customers are on a variable rate, and most of them must be well into their mortgage terms given that this rate was uncompetitive for so long. They now face a small rise in their repayments from December 8th.
To date, the Irish banks – AIB, Bank of Ireland and PTSB – have absorbed most of the ECB rate hike, with the exception of those on trackers. This was largely a factor of them being awash with cheap deposits, which were being used to part-fund mortgage lending.
The tide on deposits has turned amid political pressure, with rates for savers ticking upwards, as they should.
As noted by Darragh Cassidy of price comparison website Bonkers.ie, this move on deposits might now prompt an increase in mortgage rates.
“I’d expect more rate hikes from all the main Irish lenders over the coming months, regardless of whether the ECB hikes rates again or not,” he said. “We could see some rates go up by up to one percentage point over the coming months.”
It was always too good to be true.
