Bank of Ireland raises interest rates

One of the country’s biggest lenders has become the latest financial institution to increase its mortgage rates.

One of the country’s biggest lenders has become the latest financial institution to increase its mortgage rates.

Bank of Ireland said this afternoon it was increasing its interest rates on fixed and tracker mortgages for new customers. The changes, that take effect tomorrow, are between 0.01 per cent and 0.35 per cent.

The bank’s one-year fixed rate is to increase by 0.55 per cent and increases of up to 0.4 per cent will apply to residential investment loans.

Brendan Nevin, Director, Personal Lending, Bank of Ireland said: “The cost at which banks borrow has continued to increase over the last number of months.

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“We have been monitoring this situation very closely, and today we are moving our rates to reflect the current market conditions”.

On Friday Permanent TSB, Ulster Bank and its sister bank, First Active, increased their standard variable rates by between 0.2 per cent and 0.25 per cent, adding €40 a month to the cost of a €250,000 mortgage on a term of 30 years.

The increases are a further signal the ECB rate no longer reflects the mounting cost of home loans to banks.

Their rate increases reflect the escalating cost of wholesale money to the State's main banks, as the credit crunch has made banks reluctant to lend to each another amid concerns about mounting subprime-linked losses. This has driven up the cost of money in the financial markets, which dictates mortgage rates.

Lenders are amending mortgage products on an almost daily basis to cope with higher funding costs to prevent profit margins being eroded. They are also reducing the size of new mortgages to a lower percentage of the property's value.