The decision by ICS Mortgages to increase its fixed interest rate mortgage offers came as something of a surprise. Market interest rates have edged higher, but the general expectation is that mortgage interest rates are going to hold broadly steady, at least for the early part of this year.
There is no need for panic – after all, existing borrowers are not affected and there are plenty of attractive fixed rate offers for new entrants across the market. But there are some points that are worth noting.
The first is that the long downward move in ECB interest rates which continued up to the middle of last year may now be over. An overwhelming majority of market forecasters believe that official interest rates will remain on hold this year.
There had been earlier expectations of a further decline and so money market rates have tightened in recent weeks. The next move in ECB rates, while still likely to be quite a way off, could be upwards.
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The tightening in money market rates makes life more difficult for smaller lenders like ICS Mortgages, which rely on the market to fund their lending. In contrast, the bigger lenders – the main banking groups – have healthy deposits, many earning relatively low interest rates for savers. They continue to have healthy profit margins.
This illustrates the difficulty of attracting competition into the Irish mortgage market to compete against the established groups. Some smaller players are themselves stepping up attempts to attract deposits to provide them with a source of mortgage funding.
All this underlines the importance of what happens to PTSB, the bank in which the State has a majority stake which is now up for sale. It has a sizeable deposit book and a market share which should make it attractive to a European bank which is interested in the Irish market. It remains to be seen what emerges in the bidding process, but it is important that the new buyer has a long-term commitment to the Irish market and is not just looking to make a quick killing.
