EURO ZONE INTEREST rates look set to remain steady until at least the autumn after the European Central Bank chose not to act on inflation concerns at its monthly meeting yesterday.
The ECB left rates unchanged at a record low of 1 per cent, with the bank’s president, Jean-Claude Trichet, describing them as “appropriate”. He signalled continuing concern over inflation in the euro zone, however, calling for “very close monitoring” of price stability.
The ECB’s stance is seen as an attempt to support the still-nascent European recovery, with the bank seen as unlikely to raise rates until the third quarter of this year.
This will not prevent Irish lenders from increasing variable mortgage costs for their customers in the meantime.
Permanent TSB is expected to add one percentage point to its standard variable product today as it attempts to bolster its funding position.
The rate increase, which would come into force at the end of this month, would leave the lender’s standard variable rate at 5.1 per cent. Its tracker and fixed rates would not change, but this would be the fourth time the lender has raised variable rates since the summer of 2009.
The higher rate is likely to hit about 40 per cent of Permanent TSB’s mortgage customers, or about 80,000 loans. It is thought the average mortgage affected would be a fairly long-standing loan of about €66,000, with the average monthly increase amounting to €33. A larger, 30-year mortgage of €200,000 taken out more recently would carry a more substantial increase, likely to be closer to €120 per month, or €1,440 in a year.
Permanent TSB is unlikely to be alone in raising its variable rates as all lenders face the same struggle to meet capital standards set by the Central Bank.
Other large players in the market were tight-lipped on the issue yesterday. However AIB said it had “no current plans” to apply higher variable rates, while Bank of Ireland simply said it didn’t comment on rate changes. EBS is keeping rates under review.
Permanent TSB’s increase would probably be the last hike unilaterally imposed by the bank this year but any ECB rise would also be passed on whenever it comes.
An ECB rate increase would also be automatically passed on to all tracker mortgage customers, but would not affect fixed-rate loans, a factor which may prompt worried consumers seeking stability to switch to a fixed product.
The National Consumer Agency, the statutory body tasked with defending consumer interests, yesterday cautioned mortgage holders on this strategy, urging them to “think carefully” before giving up a tracker.
NCA chief executive Ann Fitzgerald described trackers as “valuable” and reminded consumers that they were no longer available from lenders.
“We are concerned about the level of commentary on this topic and do not necessarily agree that the advice to switch to fixed rates is in the best interests of consumers with tracker rates.”
