Variable Mortgage Rates Set to Rise?

[bugler]

http://www.independent.ie/business/...hike-threat-to-cushion-bank-debt-3025301.html

Mortgage hike threat to cushion bank debt



THOUSANDS of homeowners face higher mortgage repayments because of new personal insolvency rules, it emerged last night.
The new rules mean some of the most hard-pressed households will get part of their mortgage debt written off.
But other customers face the prospect of higher interest rates on their mortgages, as banks cushion themselves against the risk of these losses.
Any rise in rates would hit those customers on variable mortgages, while people with tracker mortgages would not be affected.
Bank of [broken link removed] boss Richie Boucher yesterday admitted he was looking at raising the interest rates on home loans to compensate for this added "risk".
He said the new insolvency laws, due later this year, could mark a "fundamental" change in the playing field for banks and make mortgage lending more risky.

Looks like BoI are testing the water for reaction to the prospect of increasing rates for variable mortgage holders. Personally I won't be suprised at all to see them raised by most banks (save PTSB). I think this illustrates the importance of stress-testing your own repayment capacity with rates of 5/6% at least to cover a "what-if" scenario.

I think this is most interesting for the political implications. The government has tried to make a big show of bringing the banks to heel (well, in certain cases) with limited success. Are they going to roll over on this? There are inherent contradictions in restoring a profitable banking sector and pursuing populist policies when it comes to how those banks set their rates (I am aware of the added element of state ownership), and this will have to be acknowledged.

Variable mortgages are a problem. They have always seemed strange things to me - should they be phased out?

Interesting that Boucher also mentions repossessions (currently at minimal levels).

 

[Brendan Burgess]

Hi Bugler

I made this very point to the Oireachtas Joint Committee on the Personal Insolvency Bill.

If they weaken the banks' security on mortgages and if they blackmail them into debt forgiveness, that the banks will adjust their prices to account for this.

Brendan