TWO MORTGAGE lenders have raised interest rates by a margin greater than the quarter point increase from the European Central Bank (ECB) earlier this month, passing on to customers higher funding costs due to the international financial crisis.
Permanent TSB, the State's largest mortgage lender, raised interest rates on some of its mortgage products by a greater margin than the 0.25 percentage point ECB rise. A spokesman for the bank said this was to take account of the higher bank funding costs.
Halifax, the retail operation of Bank of Scotland (Ireland), increased its standard variable rate by 0.35 of a percentage point.
A spokesman for the bank said this was the first time it had raised its standard variable rate since May of last year, and that it had intended to raise its rate by 0.1 of a percentage point before the ECB raised its rate.
The bank's standard variable rate will increase to 5.4 per cent from 5.05 per cent. The increase will cost borrowers an extra €50 a month to service a €250,000 mortgage over 25 years, bringing monthly repayments to €1,520.
Banks have raised rates in recent months, prior to the ECB's increase, to maintain profits on their mortgage lending as funding costs have soared.
AIB passed on the ECB increase to its customers yesterday, bringing its standard variable rate for home buyers to 5.5 per cent.
Bank of Ireland passed on the ECB increase on rates last week.
Some banks are now phasing out tracker mortgages as the ECB rate is no longer regarded as an accurate benchmark against which to gauge mortgage costs.
Ulster Bank's tracker rate for new mortgages, where the loan is worth 80 per cent of the property or less, is 0.2 of a percentage point higher than its standard variable rate. This will direct new customers away from its tracker rate.
Irish banks enjoyed a brief respite yesterday from the recent heavy falls in their share prices. AIB, Bank of Ireland and Irish Life Permanent closed up yesterday after Spanish bank Santander agreed to buy UK bank Alliance Leicester and the US government offered a lifeline to the country's two largest mortgage finance companies, Fannie Mae and Freddie Mac.
Irish Life Permanent rose 14 per cent at one point in trading yesterday, before closing up 8.7 per cent at €4.67. Bank of Ireland rose 3.6 per cent to €4.82. AIB's share price ended the day up 3.4 per cent at €7.60, despite credit ratings agency, Fitch, lowering its debt outlook for the bank to negative, citing the slowing economy. The agency said "higher risk" construction lending could lead to an increase in bad debts. The Irish banks still have some ground to make up in their recent stock market losses. Irish bank shares are down more than 50 per cent this year and about 70 per cent from their peaks last year.
The State's largest stockbroking firm, Davy, blamed the heavy shares falls in global markets yesterday when the firm said it was planning to cut as many as 75 jobs - up to 15 per cent of its 520 staff - and reduce pay by 5 per cent on earnings over €50,000 a year. The firm said turbulence in the international and domestic financial markets over the past 18 months had "reduced trading volumes" and that it was reducing its costs to protect future profits.
European and Asian stock markets rallied after the US government stepped in to protect mortgage finance companies Freddie Mac and Fannie Mae, which own or guarantee almost half of all US home loans - more than $5 trillion (€3.1 trillion) worth of debt. However, US stocks quickly shed initial gains as investors feared the steps will do little to stem substantial losses spreading through the financial sector.
