Monday, January 24, 2011

Mortgage rates ‘could hit 5% by end of year’

Mortgage rates ‘could hit 5% by end of year’
23 January 2011 By Kathleen Barrington

Rates on standard variable mortgages could hit 5 per cent by the end of the year, a leading Dublin mortgage broker has warned.

Michael Dowling predicted that the banks would continue pushing up rates this year, even if the European Central Bank held base rates steady at 1 per cent.

About 300,000 mortgage holders have standard variable rate mortgages, leaving them vulnerable to rate hikes as the banks seek to rebuild their badly damaged balance sheets. It emerged last week that Permanent TSB was to raise its variable interest rate by 50 basis points from next month.

This means that the standard variable rate payable by Permanent TSB borrowers will amount to 4.7 per cent. It is feared that other lenders could follow Permanent TSB’s lead.

Permanent TSB pushed up variable rates three times in a period of 14 months.

When the latest increases are factored in, it means that the lender has added 200 basis points to the cost of a mortgage, at a time when the ECB has left the base rate unchanged at 1 per cent.

Dowling said he feared there could be worse to come.

He pointed out that an increase in the average standard variable mortgage to 5 per cent would bring repayment s on a €200,000 mortgage up to €1,075 a month, compared with €955 a month when rates were at 4 per cent.

The Permanent TSB hike comes at a time of reduced pay and higher taxes. ‘‘It is the tipping point for a lot of people," Dowling warned.

Dowling also warned about growing evidence of members of the Garda Síochána under financial strain. He said a number of gardaí were ‘‘under phenomenal pressure’’ due to large debts incurred for property investments.

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1 comment:

  1. Last year was kinda a bizarre year for the mortgage market. In the first half of the year, you had a decent number of home sales keeping mortgages for purchases stable, thanks to the home buyer credit. In the second half of the year, that changed as demand crumbled when the credit was withdrawn. At the same time, you had very low mortgage interest rates throughout much of the year cause a mini-refinancing boom. 2011 will look very different, as the housing demand continues to struggle and mortgage interest rates have begun rising.