IRISH MORTGAGE holders are continuing to feel the pinch of higher bank funding costs following last week's warning from the European Central Bank (ECB) that it may have to raise its rates next month to curb record euro-zone inflation.
The ECB hasn't exactly clarified matters since scaring the market last week. It indicated earlier this week that it had not decided to trigger a series of interest-rate rises after next month, but it said the possibility could not be ruled out either.
Gary Dugan, an international investment adviser at Merrill Lynch who met private investors in Dublin yesterday, said he expected the ECB to raise rates by half a percentage point this year and by three-quarters of a point in a cycle of increases as the euro zone battles inflation.
This is bad for Ireland, as economic commentators had hoped for a pick-up in the housing sector later this year or next year. The prospect of higher borrowing costs means even less activity in the property market.
Most lenders increased mortgage rates for variable and new tracker rate customers. AIB was the one notable exception, holding fire for longer than its rivals. However, yesterday it raised tracker rates for new business by up to 0.4 per cent and all but one of its fixed rates by as much as 0.6 per cent.
Permanent TSB, Ulster Bank and its subsidiary, First Active, led the charge on rate increases, followed by Bank of Scotland (Ireland) and Bank of Ireland.
The two biggest mortgage lenders - Irish Life Permanent (Permanent TSB) and Bank of Ireland - said last month that lenders would have to pass on more rate increases to customers if the wholesale cost of money did not fall from their present high levels.
The bad news for borrowers is that funding costs keep going the other way and the ECB hasn't even raised its own rates yet.
The three-month interbank rate, the benchmark for mortgage costs, shot up 0.1 per cent to a 7½-year high of 4.97 per cent following the ECB's comments last week. It has stayed close to this level throughout this week.
Expect more mortgage-rate increases, even before a possible ECB hike next month.
