EBS likely to raise mortgage rates by another 0.6%

BUILDING SOCIETY EBS is likely to increase mortgage rates for a second time before the end of the year, according to its chief executive, Fergus Murphy.

The society yesterday published results showing that losses doubled to €79 million last year after writing off €197 million to account for the declining value of property loans and mortgages.

EBS has already announced that it will increase mortgage rates by 0.6 per cent from this weekend. Commenting on its results, Mr Murphy said EBS is likely to add a further 0.6 per cent to its home loan interest charges before the end of the year.

A 0.6 per cent increase would add €34 a month in repayments for every €100,000 owed by borrowers on a 30-year mortgage.

Most lenders in the Irish market have announced rate increases in recent weeks and are expected to impose further hikes over the coming months.

EBS needs to raise €875 million this year to meet new solvency requirements set by the State’s Financial Regulator.

Last month, the Minister for Finance, Brian Lenihan, announced that the Government will provide this through €100 million in a special investment share and the balance in a promissory note – a document committing the State to providing the finance if it is needed.

Since then, EBS has begun talks with Cardinal Asset Management, led by Nick Corcoran and Nigel McDermott, who were part of a consortium that tried to bid for Bank of Ireland in 2008.

Mr Murphy said the talks were progressing. “We are working with them,” he said. “It’s going according to plan.”

EBS’s net interest income fell 1 per cent last year to €155 million as it left mortgage rates unchanged while funding costs increased.

Total operating income grew 12 per cent in 2009 to €193.3 million, partly boosted by once-off gains of €34.2 million from a debt buy-back and the sale of financial assets. Net income after operating expenses came to €95.6 million for the year, a 33 per cent increase over the €73.8 million it recorded in 2008.

However, the €197.4 million it had to put aside to provide for the fall in the value of its property loans wiped out its gains and left the society in the red.

Its pre-tax loss came to €99.3 million, more than two-and-a-half times what it lost before tax in 2008. Its loss for the year was €79 million.

Write-downs included €83.4 million against the €144 million in loans that it transferred to the National Asset Management Agency (Nama), the State agency that is buying Irish banks’ property debts in a bid to recapitalise them.

There was a €27.6 million charge against commercial assets and an €86.4 million charge against the fall in value of the EBS residential mortgage book.

During 2009, EBS made €1.47 billion in new loans. Mortgages accounted for €1.38 billion of this.

Mr Murphy pointed out that the society is one of just three banks issuing new mortgages, and added that it had 44 per cent of the first-time buyer market.

The society said that 5.3 per cent of its mortgages were in arrears for three months or more last year. Home loans accounted for 4.9 per cent with buy-to-rent making up the balance.

The overall rate of borrowers falling into arrears on their mortgages is slowing, although EBS still expects the absolute level to increase, levelling off only in 2011.