The AIB has increased the rate it charges fixed-rate mortgage customers for the second time since the European Central Bank began raising the discount rate this summer.
New mortgage borrowers can continue to take advantage of existing interest rates until January 16, so the 0.5% increase for new fixed-rate borrowers will effectively apply after Christmas, according to the AIB.
The increase will raise interest rates to 4.15% for up to two-year fixed mortgages for typical first-time buyers who have loans up to 80% of the property value.
Senior mortgage expert Michael Dowling said it was the second rate hike by the AIB for fixed-rate customers since the ECB began raising rates in July, and other banks will respond in time. He said it was likely.
“Initially, the main banks, with the exception of the AIB, did not respond to the ECB and immediately raised fixed rates, but now the cycle of rising rates has taken over,” Dowling said.
He expects the Bank of Ireland to announce a second round of fixed rate hikes before Christmas, as well as permanent TSBs, but probably sometime in January.
According to Dowling, a 0.5% increase on a 30-year €300,000 mortgage adds €82 per month to the loan’s servicing costs.
The ECB is widely expected to raise the official discount rate by at least 0.5% again next month. The central bank has hiked interest rates by 2% since it launched a campaign to raise interest rates in the fight against inflation in the summer.
Households taking out tracker mortgages will soon see interest rates rise as the ECB rises.
Ireland’s major banks have somewhat delayed rate hikes for fixed and floating rate customers, but some mortgage brokers said it was inevitable that lenders would catch up with the ECB’s rate hike cycle.
Mortgage rates in Ireland are among the highest in the entire Eurozone.
Meanwhile, the implied cost of governments borrowing from international bond markets has changed little over the past week.
Ireland’s 10-year bond yield or rate is trading at 2.4%, slightly below the cost of France, Austria and Belgium.
Germany’s 10-year borrowing costs fell to 1.97%, the third straight week of decline.
The gap between German 2-year and 10-year bond yields has widened to its widest since October 1992, signaling a looming recession.
If rates on long-term bonds are lower than those on short-term bonds, it suggests investors expect central banks to raise interest rates in the short term and then cut them to deal with slowing growth. I’m here.
Commerzbank’s Christoph Rieger said this showed investors expected the ECB to cut or suspend rates next year. But he added: “I think they will continue to raise rates more than the market and many people are expecting.”
- additional reporting Reuters