Friday 18 January 2019

Dan White: Grab a fixed rate deal if you can- but only if price is right

Who in their right mind would want to pay a five-year fixed mortgage interest rate of 8.75pc?

That is the rate existing fixed-rate Permanent TSB customers will have to pay if they want to renew their fixed rate when it expires.

Of course no-one will.

The only reason the Permo is quoting these ridiculous fixed rates is because it has a contractual obligation to offer existing fixed-rate customers a new fixed rate when their current deals expire. Homeowners would want their heads examined to sign up for an 8.75pc fixed-rate mortgage.


The Permo is to all intents and purposes out of the fixed-rate mortgage business.

Other lenders, who are also finding it extremely difficult to borrow money from overseas banks, will at least partially follow the Permo's example over the next few weeks.

However, most of the Irish-owned banks haven't pushed up their fixed rates just yet, with AIB still quoting 3.85pc for a five-year fixed-rate mortgage for existing customers and Bank of Ireland quoting 4.3pc. If you are a mortgage customer of one of these two banks then you should grab one of these fixed-rates while you still can.

They'll be gone very, very soon.

Even for homeowners who opt to stick with variable-rate mortgages, the outlook is bleak.

Last week the Permo pushed up its variable rate by a further 1pc. It has now been followed by the EBS, Ulster Bank and KBC Bank.

Even worse for homeowners is that it is now extremely difficult to switch lender.

If you are either in arrears or negative equity, where the amount outstanding on your mortgage exceeds the value of "your" home, then you can forget about switching.

Even if you don't fall into either of these two categories, banks are now extremely choosy about who they will give mortgages to.

So how much worse can things get?

That's literally the €64bn question. Way back in the good old days, all of the Irish banks, but particularly the Permo, discovered that instead of first doing the hard work of going out and raising customer deposits before lending money for mortgages, they could instead borrow the money from overseas banks.

Unfortunately, when the credit crunch struck in August 2007, banks everywhere became extremely reluctant to lend to one other. Then as details of the Irish property bust and its implications for the Irish banking system began to emerge, the Irish banks found that they couldn't borrow more money from overseas banks for either love nor money.

Even worse was the fact that, while the Irish banks had lent this money to homeowners in the form of 25, 30 and even 35-year mortgages, they had borrowed the money from overseas on short-term contracts, often as little as 12 months. This meant that the Irish banks had to constantly "roll over" or refinance the money which they had borrowed from overseas banks.

No can do. As the loans from overseas banks to the Irish banks have fallen due, the overseas banks have been refusing to roll them over and have insisted on getting their money back instead. The result is that the Irish banks are now only being kept alive by short-term loans from the ECB, about €130bn, and our own Central Bank, a further €50bn. Now, even the ECB has stopped lending to Irish banks any more.

This means that Irish mortgage rates are set to soar, piling even more pain on already hard-pressed homeowners. Variable rates, which were only a little over 2pc 12 months ago, will soon go above 5pc for most homeowners. Meanwhile the pressure to "do something" about tracker mortgages -- , ie scrap them -- is intensifying. With the banks losing a fortune on trackers, which make up more than half of all mortgages, something's got to give and soon.

Meanwhile there is one thing homeowners can do -- pray.

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