THE STATE'S second-largest mortgage lender, Bank of Ireland, has raised its interest rates due to the higher cost of bank funding in the turbulent financial markets.
The bank became the latest lender to pass on the rising wholesale cost of money to customers.
The bank, which controls more than a fifth of the mortgage market, is increasing its rates on fixed and tracker home loans for new customers by between 0.1 per cent and 0.35 per cent.
The new tracker rates range from 5.05 per cent for a mortgage worth less than 50 per cent of the property's value to 5.4 per cent for a loan worth more than 80 per cent of the property.
The one-year fixed rate is rising 0.55 per cent to 5.25 per cent.
The bank is also increasing its rates on mortgages for investment properties by 0.4 per cent.
The changes come into effect today. Brendan Nevin, the bank's director of personal lending, said: "The cost at which banks borrow has continued to increase over the last number of months. We have been monitoring this situation very closely, and today we are moving our rates to reflect the current market conditions."
The bank's subsidiary, ICS Building Society, which sells most of its mortgages through intermediaries, told brokers it was reintroducing its one-year discount on standard variable rate mortgages, offering customers a reduction of 0.5 per cent for the first year.
Banks have been adjusting their mortgages to take account of higher funding costs and to prevent their profit margins being eroded. They are either raising rates or restricting the size of loans to new borrowers or both, or reducing broker commissions.
Anna Lalor, analyst at Goodbody Stockbrokers, said: "They were all following each other with rate cuts when rates were going down. Now they are following each other when the rates are moving in the opposite direction."
The dollar jumped to its highest level in five weeks against the euro yesterday, lifted by growing expectations that US interest rates have reached a bottom.
Following a quarter-point cut in the US Fed funds rate on Wednesday, the Federal Reserve said the outlook for inflation remained uncertain, but it was less bearish on the economic outlook.
David Woo at Barclays Capital said the Fed's statement that followed the rate cut was a signal that it expected to keep rates unchanged for the foreseeable future.
In contrast, the European Central Bank is expected to cut its main refinancing rate in the near future or risk a sharper downturn in growth.
By midday in New York, the dollar was up 1 per cent against the euro at $1.5454.
