Mortgage lender ICS to hike mortgage rates by one full percentage point

New fixed rate home loans as well as variable rates to rise

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Jon Ihle

ICS Mortgages has become the first mortgage lender to respond to the European Central Bank interest rate increase on Thursday by raising prices on its loans.

The non-bank lender, which is the owner-occupier brand of the financial services firm Dilosk, is raising its rates by 1pc across fixed and variable homeloans. Buy to let mortgages are going up by between 0.7pc and 1.25pc, ICS confirmed.

The rate changes will be applicable to all variable rate and new fixed rate applications from the 1st of December 2022. Changes will not impact existing customers currently on a fixed rate product.

"These rate increases reflect the evolving interest rate environment and the ongoing upward pressure on the cost of financing fixed interest rate products,” ICS said.

It comes after ECB president Christine Lagarde announced a jumbo 0.75 percentage point increase in rates, the third significant hike since July.

ECB rates have now risen 2pc in just over three months since the bank began its latest hiking cycle, the fastest and most aggressive in its history.

The quick moves have led to higher bond yields as investors price in the future cost of money, making financing more expensive for lenders like ICS that fund their mortgages on bond markets.

That has forced the non-bank lenders into pushing up prices on mortgages to stay profitable.

ICS already increased rates on some fixed-rate mortgages in March in anticipation of the changing interest rate environment. In September the lender moved its variable rates up 1.25pc, matching the ECB increases up to that date.

Finance Ireland, another non-bank lender, jacked up rates by 2 percentage points across its product range at the beginning of the month as it tried to cope with rapidly rising cost of funding.

Finance Ireland threw in the towel on its signature long-term fixed mortgages earlier this week, suspending all fixed-term loans of 10 years or more due to “volatility in interest rates”.

The pricing problems for non-bank lenders follow a period of tremendous market share growth as the brands outcompeted banks for customers coming through the broker channel, which now accounts for 50pc of the market.

But the reversal in rates has put a stop to their forward march for the time being.

By contrast the domestic banks are enjoying a rate rise bonanza.

With their lending fully funded from a surplus of cheap deposits built up during the pandemic savings glut, Irish banks have been insulated from the market moves that have pushed up overall financing costs.

As a result, they have been able to hold back on passing on full interest rate increases on mortgages in a bid to take back market share from non-bank competitors.

Only AIB has put through increases on fixed rate mortgages, with Bank of Ireland and PTSB holding back for now.

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