Bank of Ireland hikes variable mortgage rates 0.25%

Tens of thousands of people are facing added financial pressure after Bank of Ireland announced an increase of 0.25 per cent to its variable mortgage rates, effective from Friday for new or existing customers choosing a variable rate.

It is the bank’s first change to its variable rates since the European Central Bank (ECB) started raising interest rates in July 2022. To date, the ECB has increased interest rates by a cumulative 4.5 per cent.

About 10 per cent of Bank of Ireland mortgage customers are on a variable rate. Bank of Ireland holds about 40 per cent of the 750,000-strong mortgage market, which means the hike will affect about 30,000 people.

The increases see the rate for mortgages with a loan-to-value of up to 60 per cent jump from 3.9 per cent to 4.15 per cent, while those with a loan-to-value from 61 per cent to 80 per cent will increase from 4.2 per cent to 4.45 per cent.

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The rate for mortgages with a loan-to-value of more than 80 per cent will rise from 4.5 per cent to 4.75 per cent.

Daragh Cassidy, spokesman for price comparison website and mortgage broker Bonkers.ie, said the rate increase was expected given the “huge increase” in rates from the ECB over the past year.

“Since last July the ECB has hiked its rates by 4.5 percentage points,” he said. “But in that time Bank of Ireland hasn’t moved its variable rates at all. Admittedly they were very high to begin with but there was only so much of the rate hikes the bank was going to absorb.”

Looking forward, Mr Cassidy said he expected more rate hikes from all the main Irish lenders over the coming months, regardless of whether the ECB hikes rates again or not.

“So prospective first-time buyers, those on variable rates and those on fixed rates that are soon to expire need to prepare for this,” he said.

“This is because the Irish banks still have to react to a lot of the previously announced rate hikes. Since last July, Irish mortgage rates have gone up by only about 1.5 to 2 percentage points on average.

“Variable rates with some lenders have gone up by even less – the exception, of course, is trackers. This is despite the ECB hiking rates by 4.5 percentage points as mentioned.

“In other words, banks here still have to pass on a lot of the previous ECB rate hikes. This is why Ireland went from having among the highest mortgage rates in the euro zone last year to having among the cheapest this year.”

Mr Cassidy said Irish banks are currently “awash with deposits”, and until recently were paying “very little” interest to savers, using the money to part-fund its mortgage lending cheaply as opposed to borrowing from the ECB.

“This helped keep mortgage rates low,” he said. “But this has changed in recent weeks as the banks came under huge media and political pressure to improve their deposit rates.

“So with the main ECB rate now at 4.5 per cent, and banks paying much better rates to savers, we could see some rates go up by up to 1 percentage point over the coming months.”

For existing Bank of Ireland mortgage customers already on a variable rate, the change will be effective from December 8th.

The bank’s fixed and tracker rates are not affected by the change.

To date, Bank of Ireland has increased fixed rates for new mortgage customers by 1.75 per cent, as well as increased fixed rates for existing mortgage customers by 1.25 per cent.

The ECB kept its interest rates unchanged on Thursday following a series of 10 consecutive hikes since July last year, amid growing signs that its efforts to fight inflation are having an impact.

Inflation in the euro zone fell to 4.3 per cent September from 5.2 per cent in August and a record 10.6 per cent last October, but is still running at more than double the ECB’s 2 per cent target.