Lenders have been called on to absorb this week’s European interest rate hike rather than pass it on to variable-rate mortgage holders.
When the European Central Bank (ECB) raises rates for the first time in 11 years, nearly 200,000 homeowners with variable-rate mortgages are set to face a steep increase in home-loan costs.
Variable rates are some of the highest on the market, some as high as 4.5 pcs.
The ECB rate hike is due to be announced on Thursday.
A string of increases can add €1,200 per year to the cost of servicing a variable-rate mortgage.
Tracker holders will see the automatic increase implemented, but banks and other lenders have the discretion as to whether or not to pursue variable rates.
And the time taken for first time buyers and switchers to get mortgage approval and then take out a home loan is creating huge uncertainty.
The fear is that many lenders will increase their fixed and other rates until the mortgage is reduced.
The rate that borrowers pay is the one that applies to reducing the mortgage.
But due to the huge demand from switchers and new borrowers, it is taking as little as three months to get approval for a mortgage.
The President of the Consumer Association, Michael Kilcoyne, called on all lenders to commit to copying permanent TSBs and to absorb the first two ECB rate hikes.
Permanent TSB chief executive Eamon Crowley said last month that his bank may absorb the first two rounds of ECB interest rate hikes and not increase variable rate mortgage prices to increase its market share.
Mr Crowley said Irish banks “could face a hike in interest rates for some time”.
Two hikes of 0.25 per cent have been indicated, but a 0.5 per cent hike could be implemented in September if high inflation persists. It is likely to affect about 450,000 people who have a tracker or variable rate.
Every 0.25 percent increase in ECB rates will cost €30 more in monthly repayment for a €250,000 tracker mortgage. The increase in ECB rates to 0.75 pc would add €1,200 to the annual repayment on such mortgages.
Mr. Kilcoyne said: “Banks may not well pass the ECB increase to variable rate customers. Taxpayers pulled them out when they were in trouble and we got little thanks for that.
Martina Hennessy of broker Doddl.ie said that a large backlog of people attempting to switch their mortgage provider to a lower cost one had built up.
Despite regulatory rules, it is taking about five weeks to get approval for a mortgage switch.
Lenders ICS Mortgage, Avant Money and Finance Ireland have raised some of their rates in recent months, but Permanent TSB, Bank of Ireland and EBS have all reduced some of their mortgage rates.