The Minister for Finance has expressed "disappointment" at a decision by Irish Life & Permanent to increase the interest rate it charges mortgage holders but ruled out removing the State guarantee from the institution.
The decision to increase rates by one of the largest mortgage lenders in the State, Irish Life & Permanent has drawn widespread condemnation this morning.
It prompted Siptu to call on Brian Lenihan to remove the State guarantee from IL&P and other lenders who increase mortgage rates outside a decision by the European Central Bank.
Mr Lenihan said were he to remove the guarantee, it would "mean even higher costs for mortgage holders."
"This illustrates the benefits of the State guarantee to mortgage customers. Permanent TSB are paying the State for the benefit of this guarantee."
Mr Lenihan added: "Unfortunately this increase reflects commercial market realities including the increased cost of accessing funds."
In adverts in the national media today Permanent TSB said it will increase the standard variable rate it charges by half a percentage point to 3.19 per cent from Monday.
Siptu general president Jack O’Connor said in a statement this morning he would write to Mr Lenihan asking for him to “indicate to banks guaranteed by the Irish taxpayer that he will withdraw the guarantee from them if they press ahead with increases in interest rates”.
“Apart from the sheer immorality of increasing interest rates it will further exacerbate our overall economic problems, further damaging consumer confidence and reducing consumer demand, thus jeopardising even more jobs in the economy,” he said.
Fine Gael leader Enda Kenny described the decision as an "abuse" of the State's bank guarantee. "Remember, these banks owe their very existence to the Irish taxpayer . . . Brian Lenihan should call in Permanent TSB this morning and demand an explanation as to what this is all about," he said.
Mr Kenny questioned whether the Minister for Finance was informed of the step in advance. "You can't have a situation where banks under the guarantee are allowed to expand and extend their profits, and in particular where banks have been recapitalised by the Irish taxpayer and where the Minister has members on their boards."
Mr Kenny, who noted Permanent TSB had not been recapitalised by the State, said he had heard rumours that other institutions could follow with interest-rate rises.
"The Minister for Finance has very extensive powers under the legislation passed by the Dáil, and this morning he should have TSB in before him," he said on Morning Ireland.
The IL&P change could see repayments on a 30-year mortgage for €300,000 rise by about €70 a month.
According to Permanent TSB, the average monthly repayment increase will be just €14.75, as the size of the average affected mortgage is for €62,500, with 13 years remaining.
The change will not apply to holders of a tracker mortgage.
An IL&P spokesman said last night it had passed on all ECB rate reduction – when its competitors had not – and that the high cost of funds was not declining.
Labour Party deputy Sean Sherlock described the decision by IL&P as an “act of incredible arrogance”. Mr Sherlock said it would be a matter of concern if other lenders followed suit.
Elsewhere, Fianna Fáil TD Frank Fahy, who sits on the Oireachtas joint committee on Finance and the Public Service, called on mortgage holders not to pay the additional charges.
Speaking on RTÉ's Pat Kenny Show, Mr Fahey said that it was "unacceptable for the Irish banking system to take unilateral action to start increasing rates themselves. It's at the point where ordinary people have to stand up to the banks."
Earlier this week Fitch today downgraded its individual rating on IL&P due to concern over the company’s profitability over the next two to three years.
Fitch said while IL&P’s loan book contained fewer risks than those of its peers the “operating environment has significantly deteriorated which Fitch expects to lead to falling revenues and larger loan impairment charges, causing profitability to shrink”.