Irish banks have the means to forgo passing on mortgage costs even as the European Central Bank prepares to hike interest rates because their profits are set to lift off when rivals quit the market, experts have said.
Pressure is building on AIB, Bank of Ireland, and Permanent TSB to defer passing on the costs to households as the ECB prepares to unveil its first interest rate increases in over a decade.
Thursday’s ECB hike could immediately add almost €1,000 to the annual cost of servicing a mortgage for around 450,000 Irish tracker and variable rate borrowers, if the central bank were to hike official rates by as much as half a percent.
Financial markets are expecting the ECB to hike rates again in September and to follow through with further increases.
There is no escaping the rate increases for 280,000 households on tracker mortgages because their home loans agreements stipulate their interest costs rise or fall in tandem with ECB rate moves.
However, experts said that the dominant mortgage banks have adequate resources to absorb ECB rate increases on behalf of the 175,000 mortgage accounts paying out on variable rate mortgages.
Michael Dowling, a senior broker in the mortgage industry, said successive rate increases by the ECB by the end of the summer could add as much as €120 to the monthly cost — and almost €1,500 over a full year — for households servicing a €300,000 mortgage loan.
“Based on variable rates in the market, they definitely have the fat to absorb rate increases,” Mr Dowling said, pointing to the huge market share AIB, Bank of Ireland, and Permanent TSB will gain from the exit of rivals Ulster and KBC.
“From a moral viewpoint, we would be saying to the banks would they not give some respite to customers bearing in mind that inflation is at 9.1%, the highest in 40 years,” he said.
“The call would be for the banks to come in and where they can absorb for borrowers”, bearing in mind that tracker rates will rise automatically and fixed-rates will not be affected for a while, Mr Dowling added.
Brendan Burgess, an advocate for bank customers, said Irish banks already charge borrowers among the most expensive mortgages in Europe and it would be “outrageous” for some of the leading banks to increase costly variable interest rates any further.
Mr Burgess said that if banks start raising variable rates that the lenders will more than likely not increase their deposit rates.
Paul Joyce, a senior policy adviser at the Free Legal Advice Centres, said mortgage arrears could rise depending on the extent of ECB rate increases.
“The issue of insolvency for people who have no mortgage obligations at all is an issue that also needs to be considered in this cost of living crisis,” Mr Joyce said.
Meanwhile, Austin Hughes, chief economist at KBC Bank, said the latest household survey showed a sharp fall in consumer confidence this month. “The weather may be warmer, but the economic skies are getting darker for Irish consumers,” Mr Hughes said.
