Five lending institutions have now raised their medium to long-term fixed mortgage rates in response to the recent rise in the cost of funds. The remainder are closely monitoring developments on financial markets.

The hardening of rates, though not good for borrowers, is welcome news for hard-pressed savers who have seen their returns sharply eroded in recent months. First Active has said it is reviewing its deposit rates while National Irish Bank (NIB) has already increased most of its fixed-term deposit rates, with the exception of the one-month and two-month rates.

NIB's rates for deposits for terms ranging from six months to five years have all increased, with five-year deposits now earning a compound annual return of 4.33 per cent. The bank's mortgage rates remain unchanged.

EBS has also moved to help savers, increasing its one-year fixed deposit rate to 4.0 per cent from 3.5 per cent.

However, the news for mortgage-holders is not so good. Irish Nationwide, ICS Building Society, First Active, EBS Building Society and Irish Life Homeloans have all announced higher fixed rate mortgages in response to the increased cost of funding their lending.

Other institutions, including AIB, Bank of Ireland, Irish Permanent and National Irish Bank (NIB) are monitoring the situation in a bid to determine if the increase in market rates is a short-term phenomena or not. "Money market rates are up and down like a yo-yo. We're watching to see what's out in the market place to see if rates settle so we can pitch our rates and stand over them," one lender said.

But many observers are expecting further volatility ahead of a crucial meeting of the policy-setting committee of the US Federal Reserve on August 24th. If rates remain high, however, more of the institutions which have not yet raised rates - including Ulster Bank, TSB and ACC - may be forced to do so. "We are reviewing rates daily as there has been a substantial increase in the cost of funds," says Mr Shane O'Sullivan, mortgage manager with Bank of Ireland, which cut its one-year fixed rate for new customers to 4.0 per cent from 4.4 per cent last Tuesday.

Observers say there has been less pressure on the cost of short-term funds which has allowed many lending institutions to reduce their discounted variable and one-year fixed rates for new customers.

Standard variable rates, which are based on official euro rates, remain unchanged and most analysts are not forecasting an increase until next year.