THE EBS building society is the latest financial institution to announce an increase in interest rates on mortgages and savings.

It has raised its variable mortgage rate for new borrowers by a half of a percentage point to 7.1 per cent. For existing borrowers the rate will rise from June 1st.

Savers in all categories will get an increase of half of a percentage point from June 1st, according to the head of treasury at EBS, Mr Mike Len non. The lowest savings rate will be 1.75 per cent for demand accounts with savings of £1 to £20,000, while the highest interest rate will be the 6.5 per cent paid on 30 day notice Special Savings Accounts of £40,000 to £50,000.

Commenting on the rise in mortgage rates, EBS head of lending Mr Martin Walsh said it is the first increase by the building society since April 1995. When other lenders raised rates by 0.25 of a percentage point in September 1996, EBS deferred the increase, he said.

The latest EBS increase follows rises already announced by Irish Permanent, AIB, Bank of Ireland, First National, ACC Bank and National Irish Bank. The current round of increases has arisen because of Central Bank concern about the inflationary effect of a drop in the value of the pound against sterling and strong private sector credit growth, Mr Walsh said.

The situation has eased since the Central Bank raised the short term rate at which it lends to financial institutions and further upward pressure on interest rates seems unlikely at this stage", according to Mr Walsh.

Forecasting that Irish interest rates should converge with lower European rates next year, Mr Walsh advised borrowers to "bear this possibility in mind when considering longer term fixed rates".