Broker's claim about rates rejected

THE IRISH Banking Federation (IBF) has rejected claims by brokerage firm the Irish Mortgage Corporation that Irish homeowners are more vulnerable to rising interest rates than many of their EU counterparts.

The European Mortgage Federation (EMF), an industry body, published data yesterday indicating 85.7 per cent of mortgages in Ireland were being repaid on variable rates, with just 14.3 per cent on fixed rates.

Citing similar EMF data, the Irish Mortgage Corporation said last month that Irish homeowners were more sensitive than European mortgage holders to fluctuations in interest rates, as the proportion of fixed rates is lower here than in other EU countries, where long-term fixed deals are common.

The IBF said this was an “inaccurate” claim as the EMF’s variable category includes tracker mortgages, the now withdrawn loan product whereby the interest rate falls and rises in tandem with the European Central Bank (ECB) base interest rate. The ECB rate has remained at a historic low of 1 per cent for 15 consecutive months and most economists expect it will remain unchanged until 2011.

The IBF said “at least half” of all outstanding mortgages in Ireland were tracker products.

However, either in anticipation of future rate rises or because of a greater need to have certainty about repayments, more Irish homeowners are opting for fixed rates, according to recent figures from the Central Bank. Fixed-rate mortgages accounted for 26 per cent of new mortgage lending in the first quarter of 2010.

Bank of Ireland increased its variable interest rates this week, following similar hikes by Permanent TSB and EBS last month. AIB also indicated that a future variable interest rate hike was likely.