THE MORTGAGE market endured further upheaval yesterday as the State's largest mortgage lender, Permanent TSB, said it was increasing its tracker rates by as much as 0.45 per cent, while Ulster Bank said that it would stop selling mortgages through brokers from the end of next month.
Permanent TSB is to raise its tracker mortgage rates for new business by 0.2-0.25 per cent and in some cases by 0.45 per cent in response to the higher cost of bank funding due to the credit crunch. A spokesman for the bank said the changes reflected "more prudent pricing because of the credit squeeze". The bank has not changed its standard variable rate.
The increase in tracker rates is an indication that banks believe the European Central Bank (ECB) rate no longer provides a relevant index for the pricing of tracker mortgages, given that banks are paying more for their money than a year ago. The three-month Euribor inter-bank rate, which has risen steadily since January, increased again yesterday - to 4.79 per cent. This compares with a rate of 4.2 per cent last July.
Bank of Scotland (Ireland), which sells mortgages through brokers, increased its rates on Tuesday. Ulster Bank and its subsidiary, First Active, have also increased mortgage rates.
Mortgage repayments have risen by an average of 0.35 per cent since January, due to the financial crisis, adding about €75 to monthly repayments on a €300,000 mortgage, even though the ECB rate, the traditional lending gauge, has remained at 4 per cent since June 2007.
Ulster Bank has told brokers it will withdraw its mortgages from the broker market from the end of next month and sell them through its 131 branches in the Republic. First Active will continue to sell its mortgages through brokers.
Ulster Bank said in a statement: "We now have a strong distribution channel through which we can sell our mortgage product range. We have already announced that we intend to grow this network, which will provide further capability to increase our mortgage market share."
Frank Conway, director of brokers Irish Mortgage Corporation, said: "It will remain an interesting exercise if the lender can increase market share and maintain profit margins operating solely via the branch network."
Brokers sell one in every two home loans in the Irish mortgage market, which was worth €34 billion last year. Permanent TSB, Ulster Bank, First Active and Bank of Scotland (Ireland) have all cut their commissions to brokers.
Ulster Bank's parent company, Royal Bank of Scotland (RBS), Britain's second largest bank, is to ask its shareholders for £10 billion (€12.6 million) to improve its financial position after being hit by credit-related writedowns and its part in the acquisition of ABN Amro last year.
