Latest inflation figures show that mortgage interest repayments went up by over 7% in the last month. In the last year, they went up by 15%.
This is a huge increase for households and gives a lie to the government’s claim that it is dealing with the inflation crisis. In fact, by supporting increases in interest rates it is making things worse.
There is no evidence that excess demand is causing inflation. Raising interest rates to depress spending will put further financial pressure on struggling households without solving the problems that are actually causing inflation in the first place. The main cause is profiteering by corporations.
The European Central Bank has raised interest rates three times already this year with more planned before the end of 2022 and in the first months of 2023. In October it increased interest rates by 0.75% bringing the ECB’s main lending rate up to 2% after being at zero for more than six years. It is expected to peak at around 3% by summer next year.
Those on tracker mortgages are automatically hit with these new rates. Someone with a mortgage of €200,000 over 25 years will pay €2,300 a year extra as a result of the three increases. Tracker rates in Ireland are above ECB rates. Variable rates are now, in many cases, almost 5%.
But the people being hit hardest by the increases are those whose mortgages have been sold to vulture funds as the entities servicing these loans do not offer fixed rates. Thousands of borrowers are being impacted. Many have been told their variable rates are now going to 5.1pc, with others reporting that they are being hit with rates as high as 5.8pc. This is despite the fact that they were told by the Central Bank and the Government they would not lose out when their mortgages were sold.
The two main banks have recently decided to increase fixed rates for new customers despite making a killing from the recent ECB rate increases. The ECB is now paying 1.5% for bank funds deposited with it. Up from -0.5% before the recent increases. The main banks are set to make a €1bn killing on deposits with the ECB.
AIB has reported an after-tax profit of €477m in the six months to June. It now expects net interest income to rise by 10pc this year, compared to 2021. Bank of Ireland made pre-tax profits of €409 m in the same period.
People Before Profit says we need interest rate caps and controls. The banks who are hugely profitable, should be told to absorb the ECB increases and not pass them on to lenders who are already struggling with a cost-of-living crisis. Remembers the state still owns a majority of AIB which has a third of the mortgage market.
We also need to introduce legislation to cap mortgage rates. Legislation was recently introduced to control the rates moneylenders can charge. Why not do the same for mortgages?