Finance Ireland responds to ECB move by hiking variable mortgage rate

Non-bank lender Finance Ireland is to increase its variable rate on mortgages by 0.25 per cent from next month.

The company, which has a 5 per cent share of the mortgage market here, said the move was being taken on the back of the European Central Bank’s decision to hike its main interest rates by a further quarter of a percentage point last month.

The move by the ECB took its main rate for pricing mortgages to 4.25 per cent. It was the ninth straight increase with central banks around the world working to tame runaway inflation.

The increase by Finance Ireland will take effect from September 12th. The majority of the lender’s mortgages are on fixed rates, to which there are no change.

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“Finance Ireland has a range of mortgage offerings, and customers are advised to contact the lender or a broker or to view the CCPC website if they think they may qualify for a different product or a different rate on their mortgage,” the group said.

The average interest rate attached to new mortgage agreements in Ireland edged above 4 per cent in June, the highest level in almost a decade, tightening the squeeze on borrowers.

The Central Bank said the weighted average interest rate on new mortgage contracts at the end of June was 4.04 per cent, an increase of 20 basis points (a fifth of a percentage point) on the previous month and up 136 basis points on this time last year.

Lenders in the Republic were initially slow to pass on the uptick in interest rates internationally to customers here but have begun to catch up.

Bank of Ireland recently hiked its fixed rates for the fourth time in less than a year, while AIB raised its fixed rates in June and its variable rates are due to go up next week.

Inflation in the Irish economy fell to an 18-month low of 5.8 per cent in July as the cost of basic items such as clothing and footwear fell back and the original energy price shock faded.

However, the underlying rate, which strips out volatile energy and food prices, remained stubbornly high at 6.6 per cent, keeping the squeeze on household budgets.

The main driver behind this was higher mortgage interest costs, which were up almost 50 per cent on an annual basis on the back of the rate hikes by the ECB, which has kept the door open for another rate hike in September.

Underlying price growth has been a key focus for policymakers amid concern the initial price surge has spread out to other parts of the economy and may be driving higher wage demands. The ECB has warned it will keep raising interest rates as long as core inflation is rising.